- This topic has 2 replies, 2 voices, and was last updated 6 years ago by
.
Viewing 3 posts - 1 through 3 (of 3 total)
- Posts
Why cant the derivative be moved in the same direction of the hedged item
say we want to hedge the risk of falling our home currency and invested in oil derivative but both the oil and the currency rose
but in questions i have always noticed an inverse relationship effectively causing to hedge, i am obviously not familiar with something basic.
Plz help
It is because when you purchase the derivative you do so in a way that is betting against what you expect to happen.
So if you think oil prices will go up you bet against them going up, so you pay more on the open market for your oil but win the bet.
Hope that clears it up for you.
Thanks
Viewing 3 posts - 1 through 3 (of 3 total)
- The topic ‘Derivatives and an inverse relationship’ is closed to new replies.