Money market hedge,
Definition of Money market hedge:
A way of locking in a home currency value by using borrowed foreign currencies.
The money market hedge allows the domestic company to lock in the value of its partner’s currency (in the domestic company’s currency) in advance of an anticipated transaction. This creates certainty about the cost of future transactions and ensures the domestic company will pay the price that it wants to pay.
A money market hedge is a technique used to lock in the value of a foreign currency transaction in a company’s domestic currency. Therefore, a money market hedge can help a domestic company reduce its exchange rate or currency risk when conducting business transactions with a foreign company. It is called a money market hedge because the process involves depositing funds into a money market, which is the financial market of highly liquid and short-term instruments like Treasury bills, bankers’ acceptances, and commercial paper.
How to use Money market hedge in a sentence?
- A money market hedge is a tool for managing currency or exchange-rate risk.
- Money market hedges can offer some flexibility, such as hedging only half of the value of a transaction.
- It allows a company to lock in an exchange rate ahead of a transaction with a party overseas.
- Money market hedges are typically more complicated than other forms of foreign exchange hedging, such as forward contracts.
Meaning of Money market hedge & Money market hedge Definition