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Related to hedging: hedging bets, Currency Hedging


in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities marketcommodity market,
organized traders' exchange in which standardized, graded products are bought and sold. Worldwide, there are more than 20 major commodity exchanges and many smaller ones that trade commodities, ranging from grains and beans, coffee, tea, and cocoa, and cotton
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. Typically, hedging involves a trader contracting to buy or sell one particular good at the time of the contract and also to buy or sell the same (or similar) commodity at a later date. In a simple example, a miller may buy wheat that is to be converted into flour. At the same time, the miller will contract to sell an equal amount of wheat, which the miller does not presently own, to another trader. The miller agrees to deliver the second lot of wheat at the time the flour is ready for market and at the price current at the time of the agreement. If the price of wheat declines during the period between the miller's purchase of the grain and the flour's entrance onto the market, there will also be a resulting drop in the price of flour. That loss must be sustained by the miller. However, since the miller has a contract to sell wheat at the older, higher price, the miller makes up for this loss on the flour sale by the gain on the wheat sale. Hedging is also employed by stock and bond traders, export-import traders, and some manufacturers. See also hedge fundhedge fund,
in finance, a largely unregulated investment device with a relatively small number of investors that aims to outperform the markets. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher
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in capitalist countries, a method of insuring prices and profits by selling or buying futures—that is, contracts to deliver or receive commodities at a future time—in commodity markets. Since fluctuations in the market prices of commodities and the prices of futures tend to offset one another, hedging protects the capitalist, to a certain degree, against losses resulting from price changes on the commodity market.

References in periodicals archive ?
For companies hedging forecasted exposures and electing hedge accounting, the principal challenge was to ensure that derivatives could be matched to a pool of exposures with similar time horizons.
The IRS has begun raising hedging issues more frequently on audit and examining whether taxpayers have proper identifications.
Commissioner,(4) the Tax Court upheld the taxpayer's characterizations of certain transactions as hedging positions that generated ordinary gains or losses.
Barring that, it should never be too late to start hedging, and it can never be too early to define your risk management policy and reporting tools to measure your hedging performance.
The regulations, which relate to business hedging transactions are generally consistent with the temporary and proposed regulations issued on October 18, 1993.
133 establishes accounting and reporting standards for derivative instruments, including certain ones embedded in other host contracts (for example, a mortgage with a pre-payment option), and for hedging activities.
446-4 timing rules apply to any hedging transaction otherwise within the definition of "hedging transaction" under Regs.
This view spawned a number of disputes because the IRS challenged the accounting treatment for hedging transactions that taxpayers had considered to be well settled.
From inception of the hedging program, Lithia applied a method of cash flow hedge accounting under SFAS No.
This Statement on Auditing Standards (SAS) provides guidance to auditors in planning and performing auditing procedures for assertions about derivative instruments, hedging activities, and investments in securities(2) that are made in an entity's financial statements.
FNMA caused the IRS to reconsider its position regarding the proper treatment of hedging transactions.