One potential avenue is through meetings or conference calls with the analysts and investors, suggests Wharton accounting professor Brian Bushee. Such a transaction is termed a money market hedge. When payment in Canadian dollars was received from the customer, she would use the proceeds to pay down the Canadian dollar debt. She would borrow Canadian dollars, which she would then change into Euros in the spot market, and hold them in a Euro deposit for two months. Alternatively she could have used the borrowing market to achieve the same objective. The exporter's treasurer has sold Canadian dollars forward to protect against a fall in the Canadian currency. People typically do not bet against desired outcomes that are important to their identity, due to negative signal about their identity that making such a gamble entails.īetting against your team or political candidate, for example, may signal to you that you are not as committed to them as you thought you were. A New England Patriots fan, for example, could bet their opponents to win to reduce the negative emotions felt if the team loses a game. So there is a risk of a future event that affects stock prices across the whole industry, including the stock of Company A along with all other companies. But Company A is part of a highly volatile widget industry.
He wants to buy Company A shares to profit from their expected price increase, as he believes that shares are currently underpriced. In simple language, a hedge is used to reduce any substantial losses or gains suffered by an individual or an organization.
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