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Essay / Research Paper Abstract
This 7 page paper discusses at currency hedging, defining what it is and looking at how it is used and the way that currency hedging can reduce exposure to risk of currency exchange rates. The bibliography cites 4 sources.
Page Count:
7 pages (~225 words per page)
File: TS14_TEhed001.rtf
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Unformatted sample text from the term paper:
in IAS 39 where most hedging instruments have to accounted for at current market value. The concept of hedging is to reduce the volatility and exposure of risk, in
order to appreciate this especially with reference currency hedging the first stage is to define what is mean by hedging and to look at how and why it can reduce
risk, even if current financial accounting standard may increase the volatility in the financial results. The first stage is to define what hedging is. This is a tool that
is made use of by companies (or traders) that want to protect an open position. An open position is a position where losses may be incurred as the company or
trader has some commodities, which can include currencies and securities, which are bought, but not sold, or sales that are not covered or hedged, meaning that fluctuations could impact on
the value of the trade. The later of these is know generally as a bear position, where it is a trade, and the former, where it is goods bought and
not sold is that of a bull position (Howells and Bain, 2004). This vulnerability will remain until the market position is either closed, or the use of hedging is put
into place. Therefore hedging is a tool used to protect a position where a trader or company may suffer as a result of market fluctuations.
There are two types of hedging, long hedging and short hedging. Long hedging is best explained with a fictitious example. We have a company that trades internationally.
Contracts may be signed to buy a large amount of goods to a company over a period of time. The price may be fixed in a different currency, as such
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