The Bangko Sentral ng Pilipinas (BSP) said hedging is no longer a problem today because the peso is very strong against the dollar thus any foreign exchange positioning will be nothing but a waste of effort.
Hedging is an investment position intended to offset potential losses/gains that may be incurred by a companion investment.
In simple language, hedging is used to reduce any substantial losses/gains suffered by an individual or an organization.
Hedging can be done in various financial activities, such as stocks investment, exchange-traded funds, insurance, forward contracts, swaps, options, many types of over-the-counter and derivative products and futures contracts.
It should not be confused with speculation as the latter is the practice of engaging in risky financial transactions in an attempt to profit from short or medium term fluctuations in the market value of a tradable good such as a financial instrument, rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, interest or dividends.
“When you hedge, you don’t expect to make money but just to ensure your foreign exchange position,” deputy governor for monetary stability sector Diwa Guinigundo explained to The Daily Tribune.
The system of hedging was prevalent some 12 years ago when the peso was falling sharply against the dollar.
BSP says hedging no longer needed due to strong peso
- Written by Tribune
- Thursday, 20 September 2012 00:00
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