hedging

Vocabulary Word

Definition

'Hedging' is a tactic to reduce or control risk. It's like wearing a helmet when riding a bike, the helmet reduces your risk of a head injury in case of an accident. In finance, it means making an investment to reduce the risk associated with adverse price movements in an asset.

Examples in Different Contexts

In investment management, 'hedging' is a fundamental practice. An investment manager might say, 'Implementing effective hedging strategies is crucial to mitigate risks associated with market volatility and protect our investment portfolio from significant losses.'

Practice Scenarios

Business

Scenario:

As we expand our supply chain, we need to think about how we might be exposed to fluctuations in commodity prices.

Response:

Absolutely, we could hedge by diversifying our suppliers, reducing the risk of a sudden price rise in commodities.

Leadership

Scenario:

We're looking at a potentially successful quarter, but it's important not to put all our eggs in one basket.

Response:

I agree, we should hedge against potential downturns by diversifying our product offerings and markets.