Research Paper on:
Theory and Practice of Hedging

Unformatted Sample Text from the Research Paper:
protection of a positions so that the risk for the future is minimised or controlled. When we consider hedging in corporate terms with financial tools this is still the correct  basis for the interpretation of the term, however, here it is also more complex and requires specialist knowledge. This is a subject many students and business scholars will shy away  from due to the in-depth knowledge that is required and the level of risks that are associated with the practice of hedging. Indeed, even companies that are able to employ  specialist may still realise heavy losses, such as the recent announcement by Golden State Bancorp announced a loss of $17 million due to hedging (Moyer, 2002). Hedging may be  used in different ways and with different goals by the various corporations. In seeking to understand this subject in greater detail we can look at the meaning of hedging and  also how and why it is used and then apply this to different companies. If we then compare the different companies we can then understand both the application of the  theory we will examine in this first part and have greater clarity of how hedging may be used as a tool by different companies. 1.1 The Definition of Hedging  The first stage is to define what it is we mean by hedging. This is a tool that is made use of by traders or companies that want to protect  an open position. An open position is a position where losses may be incurred as the company or trader has some commodities, which can include currency and securities, which are  bought, but not sold, or sales that are not covered or hedged, meaning that fluctuations could impact on the value of the trade. The later of these is know generally