Hedging is normally based on the price of underlying asset examples such as shares, gold, etc. But there are so many transactions that a company may have (For example if there is transaction risk in foreign currency or interest rate risk) what will be the underlying asset?
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Underlying Asset
5y ago#1Hedging in the exam is only related to dealing with either foreign exchange risk or with interest rate risk.
What is being hedged is the underlying transaction (i.e. the receipt or payment in a foreign currency, or the borrowing or depositing when the interest rate may change), just as I explain in my lectures. There is no underlying asset!!
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