Hedging literally means reducing exposure to risk. The word is used in share markets, commodity markets and currency markets where the prices are likely to fluctuate.
A contract to SELL a commodity or a currency over the period of time at a particular price leaves the seller in a open position and exposed to price fluctuations. However, this exposure is covered by the act of BUYING a Futures Contract. A perfect hedge is basically a no risk no gain precaution. In Corporate hedging, the corporate treasury officials try to save a firm from the exposure to the foreign exchange risk, maximize forex income and minimize costs. The minimizing of "transactional risks" is the main centerpiece of a Corporate Hedging Policy.
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