relating to hedging
This query is : Resolved
Vishnu Agarwal
(Querist)
28 July 2008
What is the meaning of hedging & How it works & give an suitable example?
What is the meaning of hedging & How it works & give an suitable example?
Vishnu Agarwal
(Querist)
28 July 2008
Reply as soon as possible.
Reply as soon as possible.
CA. Dhirendra Singh
(Expert)
28 July 2008
Hedging means reducing or controlling risk. This is done by taking a position in the futures market that is opposite to the one in the physical market with the objective of reducing or limiting risks associated with price changes.
Hedging is a two-step process. A gain or loss in the cash position due to changes in price levels will be countered by changes in the value of a futures position. For instance, a wheat farmer can sell wheat futures to protect the value of his crop prior to harvest. If there is a fall in price, the loss in the cash market position will be countered by a gain in futures position.
Hedging is a two-step process. A gain or loss in the cash position due to changes in price levels will be countered by changes in the value of a futures position. For instance, a wheat farmer can sell wheat futures to protect the value of his crop prior to harvest. If there is a fall in price, the loss in the cash market position will be countered by a gain in futures position.
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