hedging (1 Viewer)

[want2beSMART]

what is hedging? i hear that the wealthy can avoid inflation by hedging?

 

[Will Hunting]

Hedging is eco-lingo for speculation on the FOREX market. You generally speak of establishing "hedge funds" in the market for the purpose of turning short term profits on currency movements or, in some cases, retaining your holdings as financial assets over the medium to long term. Since inflation is a uniform appreciation in prices across an economy, I can't see how hedging, in this context, could provide a means for avoidance of this phenomenon. Perhaps hedging has other functions, or other meanings, but the definition I've put down is certainly the most heard of.

 

[want2beSMART]

dude, could you put that in my simpler terms?

 

[Will Hunting]

Hedging is buying other currencies on the FOREX market to gain from short term movements in their values. If you buy another currency, and then its exchange rate rises, you can sell the currency and make a profit. This means a capital gain that could make inflation easier to bear.

 

[want2beSMART]

suddenly, it all makes sense

thanks guys