Derivatives – Hedging Jobs Interview Questions and Answers

4 Questions

Derivatives are often used for hedging risk components to which a company is exposed. There are several common ways to use derivatives for hedging. <strong>Foreign-Exchange Risks</strong> One of the most common uses of derivatives is for hedging foreign-exchange risk, a risk that is introduced by a change in currency exchange rates which could have an adverse impact on business results. <strong>Hedging Interest-Rate Risk</strong> Companies also often use derivative instruments to hedge interest-rate risk in various ways. For example, a company could effectively lock in the future interest rate by purchasing (or 'take a long position on') in a Treasury futures contract. <strong>Commodity or Product Input Hedge</strong> Companies that depend heavily on raw-material inputs or commodities are sensitive, sometimes significantly, to the price change of the inputs.