Question

Write a ​short paragraph​ describing what hedging is and why corporations do it. Why is hedging a key economic activity?

Answer 1

Hedging is an investment which will be protecting the finances of an individual from the risky situation and heading is often done in order to reduce or minimise the chances of reduction in the value of asset and it will limit the loss to a certain amount if the Asset does not lose value. Corporations are involved in hedging their exposure because there are higher risk associated with investment into to various Assets and they will be trying to protect themselves by by taking hedging position so that they are not exposed much to the reduction of the value of their exposure and hence they will be trying to protect themselves from the unfavorable moments of the market so hedging will be serving as a risk management strategy which will be employed to offset the loss in investment by taking the opposite position in the related asset.it is a key economic activity because it will be leading to reduction of the risk and protection against adverse economic environment so that that damage and the loss could be minimum.