Hedging is a key approach to risk management that uses various financial strategies. Different types of hedging, the benefits and drawbacks companies might face and clear advice on successfully implementing and measuring hedging strategies are provided.
Hedging refers to the reduction of an existent risk by the elimination of exposure to price movements in an asset (Goyal, 2009). In other words, hedging is a means of insurance and protection against a business risk by reducing uncertainty over the future path of volatile inputs. It is a financial strategy to reduce the overall risk in a business by taking on an asset position that offsets an existing source of risk.
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- Austin, M. C. (2004) Hedging helps airlines deflect higher jet fuel costs. Purchasing, Vol.133(13), pp. 13-14.
- Banks, H. (2015) Yum! Brands, Inc. (YUM) China Troubles Result in Spin Off, China Business News, Oct 20.
- Behrmann, E. (2015) BMW’s Hedging Charge Means Strong Dollar Not Jackpot It Could Be, Bloomberg Business, May 7.
- Carter, D. A., Rogers, D. A., and Simkins, B. J. (2006) Does hedging affect firm value? Evidence from the US airline industry. Financial Management, Vol.35(1), 53-86.
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