International Banking – Hedging, Long/Short Positions, Forward Contracts
Q. Explain the terms hedge, long position, and short position in the context of managing financial institutions’ risk. What are the pros and cons of forward contracts? A. Hedge: Hedging transactions are executed to reduce or eliminate the price volatility risk of an asset in the exchange market (Amadeo, 2020). We ‘’hedge’’ our risk by fixing the exchange rate or...