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Essay / Research Paper Abstract
This well written 32 page paper is a comprehensive study of the use of derivatives, such as futures and options for hedging. The writer begins with an in-depth look at what hedging is, why and how it is undertaken and the motivations that drive companies into hedging policies. The second part of the paper then considers two case studies where long and short hedging are used and considers their use against the theory discussed in the first part of the paper. The cases used are American Barrick Resources Corporation and Honeywell Inc. The bibliography cites 11 sources.
Page Count:
32 pages (~225 words per page)
File: TS14_TEhedge1.rtf
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Unformatted sample text from the term paper:
protection of a positions so that the risk for the future is minimised or controlled. When we consider hedging in corporate terms with financial tools this is still the correct
basis for the interpretation of the term, however, here it is also more complex and requires specialist knowledge. This is a subject many students and business scholars will shy away
from due to the in-depth knowledge that is required and the level of risks that are associated with the practice of hedging. Indeed, even companies that are able to employ
specialist may still realise heavy losses, such as the recent announcement by Golden State Bancorp announced a loss of $17 million due to hedging (Moyer, 2002). Hedging may be
used in different ways and with different goals by the various corporations. In seeking to understand this subject in greater detail we can look at the meaning of hedging and
also how and why it is used and then apply this to different companies. If we then compare the different companies we can then understand both the application of the
theory we will examine in this first part and have greater clarity of how hedging may be used as a tool by different companies. 1.1 The Definition of Hedging
The first stage is to define what it is we mean by hedging. This is a tool that is made use of by traders or companies 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 currency 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
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