Hedge (Currency) - Explained
What is a Currency Hedge?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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What is a Currency Hedge?
Currency hedging is similar to insurance, which you buy to protect yourself from an unforeseen event. Currency hedging is an attempt to reduce the effects of currency fluctuations on investment performance.
To hedge an investment, investment managers will set up a related currency investment designed to offset changes in the value of the Canadian dollar. In general, currency hedging reduces the increase or decrease in the value of an investment due to changes in the exchange rate. In other words, it aims to even out results.
Related Topics
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- Foreign Exchange Market
- Who Demands and Supplies Currency in a Foreign Exchange Market?
- Foreign Direct Investment
- Greenfield Investment
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- Portfolio Investment
- Hedging
- Dealers in the Interbank Market
- Weak and Strong Currency
- Depreciation of Currency
- Appreciating and Depreciating Currency
- Exchange Rate
- Real Effective Exchange Rate (REER)
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- Expectations about Future Exchange Rates Shift Demand
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- Law of One Price
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- Foreign Exchange Contract
- Arbitrage
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- Exchange Rate Policy
- Fixed Exchange Rate
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