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Foreign Exchange: The Complete Deal by James Sharpe

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12. Hedging Currency Exposure

Overview of hedging

This chapter will highlight the importance of currency hedging to companies and portfolio managers. Hedging is a tactic used to offset losses or potential losses that might arise from exposure to currencies. A perfect hedge eliminates the possibility of future gain or loss. It may be said that the point of hedging is to achieve some measure of certainty in an uncertain world. The idea is to manage exposure on this basis, not towards a particular forecast.

From a corporate point of view, if a company generates cash flows in currencies other than the base currency of the country in which it is based, then the value of the company will fluctuate with movements in the exchange rates of the ...

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