118 • Supply Chain Risk Management: An Emerging Discipline
Hedging
Hedging is a nancial risk technique that has been practiced for many
years. What exactly is hedging? Hedging is a risk management strategy
used in limiting or osetting the probability of loss from uctuations in
the prices of commodities, currencies, or securities.
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In eect, hedging
is a transfer of risk without buying insurance policies. Hedging employs
various techniques but basically involves taking equal and opposite posi-
tions in two dierent markets. One could make a strong argument that
a longer- term supply contract that features xed pricing oers hedges
against nancial risk. Hedging and hedges can take a variety of forms.
Hedging is a best demonstrated practice ...