Hedging can also be used to made risk. A hedge is an investment position intende

Question

Hedging can also be used to made risk. A hedge is an investment position intended to offset potential losses that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of over-the-counter and derivative products, and futures contracts (Doupnik & Perera, 2012). When used in international trade, hedging is the process of eliminating exposure to foreign exchange risk so as to avoid potential losses from fluctuations in exchange rates (Doupnik & Perera, 2012). In addition to avoiding possible losses, companies hedge foreign currency transactions and commitments to introduce an element of certainty into the future cash flows resulting from foreign currency activities. Hedging involves establishing a prize today at which foreign currency can be sold or purchased at a future date (Doupnik & Perera, 2012).

Doupnik, T. S. & Perera, M. H. B. (2012). International Accounting. New York: McGraw-Hill

Question:

Based on your research, are the ethical issues relating to using derivatives in risk management?

Explanation / Answer

y definition a hedge is an investment position intended to offset potential losses that may be incurred by a companion investment. The primary goal of a hedge isn

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