Hedging Techniques

Hedging Techniques

Basically hedging mean the reducing or eliminating the risk factor.

Types of Hedging Techniques

Basically there are two types of hedging techniques

1. Internal Hedging Technique
2. External Hedging Technique

1.Internal Hedging Techniques

with the help of internal hedging techniques risk is reduced however total risk elimination is not possible whereas with help of external hedging techniques risk elimination is possible.



The following are the internal hedging Techniques

1. Invoicing in local currency
2. Advance payment from customer (Leading)
3. Netting also know as netting

2. External Hedging Techniques

The following are important external hedging techniques

1. Forward Contract
2. Money Market involvement
3. Currency Contract
4.  Future Contract
5. Currency options