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Hedging is basically based on price of underlying asset, example shares, gold etc. But there are so many transactions that company may have, so for example if there is transaction risk in foreign currency or interest rate risk , what will be the underlying asset?
The only hedging relevant for Paper F9 is the hedging against exchange rate movements and interest rate movements (although calculations on interest rate hedging is not examinable).
The underlying asset does not have to be something as tangible as gold. The underlying assets can be currencies, indices or interest rates.
In the case of foreign exchange hedging it is currencies, in the case of interest rate hedging it is interest rates.My free lectures cover both currency and interest rate hedging in detail. (The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.)
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