Hedging

Last Updated: Jun 7, 2019

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A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract. Borrower's typically hedge interest rates, foreign currencies and commodities through derivative products including options, swaps, futures and forward contracts. Lender's needs to understand the Borrowers hedging strategy as it relates to fluctuations in the value of inventory and the interest paid by the borrower(s). Hedging agreements offered by Lenders are typically considered Banking Products and the amount owed under these contracts may be reserved for in the BB.