HARD CURRENCY
Often referred to as convertible currency, hard currency is the currency of a country that is widely accepted in the world and may be exchanged for that of another nation without restriction. Hard currency nations typically have sizeable surpluses in their balance of payments and foreign exchange reserves. The U.S. dollar and British pound are good examples.
HEDGE
Hedge is the process of protecting oneself against unfavorable changes in prices. One may enter into an offsetting purchase or sale agreement for the express purpose of balancing out any unfavorable changes in an already consummated agreement due to price fluctuations. Hedge transactions are commonly used to protect positions in (1) foreign currency, (2) commodities, and (3) securities. For example, MNCs engage in forward contracts to protect home currency value of various foreign-currency-denominated assets and liabilities on their balance sheet that are not to be realized over the life of the contracts. Also, the importer must consider the basis for the expected future spot rate and why that value diverges from the forward rate, the willingness to bear risk, and whether it has any offsetting currency assets.
HEDGE FUND
A hedge fund is a mutual fund that seeks to make money betting on a particular bond market, currency movements, or directional movements based on certain events such as mergers and acquisitions. The initial concept of the hedge fund, developed by Alfred Winslow Jones in the 1950s, was that securities of two different companies in similar businesses would have different characteristics in up and down markets. By buying the one likely to do the best in a rising market and selling short the one likely to do the worst in a falling market, the investor would be hedged and should make money no matter what direction the market took. Hedge funds offer plays against markets, using options, short-selling, futures, and other derivative products
HEDGER
Hedgers, mostly MNCs, are individuals or businesses engaged in hedging activities. They engage in forward contracts to protect the home-currency value of foreign-currency-denominated assets and liabilities on their balance sheets that are not to be realized over the life of the contracts.
HEDGE RATIO
A ratio comparing the amount you are hedging with the size of the position being hedged against. For example, a 25% hedge ratio means you have 1/ 4 of a portfolio with a neutral return.
HEDGING
Hedging involves entering into a contract at the present time to buy or sell a security (such as foreign exchange) at a specified price on a given future date.
HERSATT RISK
Hersatt risk is settlement risk, named after a German bank that went bankrupt after losing a huge sum of money on foreign currencies.
HOT MONEY
Used to describe money that moves internationally from one currency to another, either for speculation or because of interest rate differentials, and swings away immediately when the interest difference evaporates. An MNC is likely to withdraw funds from a foreign country having currency problems.
HYBRID FOREIGN CURRENCY OPTIONS
Hybrid foreign currency options involves the purchase of a put option and the simultaneous sale of a call—or vice versa—so that the overall cost is less than the cost of a straight option.
