The Need For Hedging

Risk management through hedging allows companies to borrow from themselves, transferring funds to where they are needed the most.

• The main objective of risk management is that the company should have cash available for making value-enhancing investments.
• Companies prefer to fund their investments with internal, retained earnings, and not through any outside equity. External financing is seen as a costly affair.
• Multiple studies on companies managing risk using hedging strategies reveal that it is almost a zero-sum game and does not insulate them from all kinds of risks.