Business and Personal Finance Dictionary

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• THEORY OF HEDGING
  
  Refers to economically reasonable techniques that generate compensatory offsets relative to inventory, portfolio or other course of business positions and transactions. It is predicated on the understanding that the resultant basis series between the actual position and the hedge position is more financially stable and has a lower monetary amplitude than the unhedged series. Often this definition refers to verisimilar items in terms of the position to be hedged and the hedge vehicle.
  
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