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How and why to hedge currency?

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Question ajoutée par Waqar Haq , Project Administrator , Quantum Murray LP
Date de publication: 2015/06/25
Nikolaas Delport
par Nikolaas Delport , Business and Product Development , Riscura Solutions

A currency hedge position is traded into to protect capital in the event of a currency depreciation. Thus, the objective is to short the currency in which the assets is denominated to protect from downside risk.

 

A currency hedge can be obtained through the use of derivative instruments.

 

One can short a currency future or buy a put option . This allows you to sell the currency at a predetermined price at expiry of the contract for the future

 

Other more complex strategies also exist for instance a short fence. This involves selling a out of the money Call option and using the premium to buy a out of the money Put option.

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