Okuzeka
Finance & Banking vocabulary · Risk Management

Hedge

Meaning in finance & banking, with examples

/hedʒ/verbCommon term

In finance & banking, hedge means: To reduce the risk of losing money from changes in prices, interest rates or exchange rates, usually by taking an opposite position with derivatives.

In Turkish: riskten korunmak, hedge etmek

How it is used

Used as a verb and a noun: companies hedge their currency risk, and a forward contract is a hedge. Treasury teams hedge with forwards, swaps and options. Hedging limits losses but also limits gains.

Example sentences

  1. The exporter hedges its euro income with forward contracts.

  2. We used an interest rate swap to hedge the floating-rate loan.

Common collocations

  • hedge currency risk
  • hedge against
  • hedging strategy
  • natural hedge
  • hedge an exposure
  • market riskThe risk of losses caused by changes in market prices, such as interest rates, exchange rates, share prices and commodity prices.
  • exposureThe amount of money a bank could lose to a particular borrower, sector, country or market if things go wrong.
  • foreign exchangeThe buying and selling of currencies, or foreign currency itself. It is often shortened to FX or forex.
  • exchange rateThe price of one currency in terms of another, for example how many Turkish lira you need to buy one euro.

This word in other fields

The same English word can have a different meaning in another field:

More terms: Risk Management

Practise with graded reading

Reading at the right level is the fastest way to make new words stick. Pick free English books by level:

This page explains English vocabulary for learners. It is not financial advice.