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A cash flow hedge [1] is a hedge of the exposure to the variability of cash flow that: is attributable to a particular risk associated with a recognized asset or liability. Such as all or some future interest payments on variable rate debt or a highly probable forecast transaction and; could affect profit or loss (IAS 39, §86b)
Individual bonds provide the ability to match the cash flows needed, which is why the term "cash flow matching" is sometimes used to describe this strategy. Because the bonds are dedicated to providing the cash flows, the term "dedicated portfolio" or “asset dedication” is sometimes used to describe the strategy.
A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, [1] many types of over-the-counter and derivative products, and futures contracts.
Investing in bond funds is generally easier than investing in individual bonds. You can purchase shares of a bond fund through a brokerage account with a relatively small initial investment ...
A hedge fund offers people the chance to invest in a portfolio, with returns based on how well the portfolio’s underlying investments do. The fund itself makes most of its money from the fees ...
Asset-backed securities are bonds or notes based on pools of assets or collateralized by the cash flows from a specific pool of underlying assets. Mortgage-backed securities are asset-backed securities, the cash flows from which are backed by the principal and interest payments of a set of mortgage loans.
Bond portfolios, when e.g. a component of an Asset-allocation fund or other diversified portfolio, are typically managed similar to equity above: the Fund Manager will hedge her bond allocation with bond index futures or options; with the number of contracts, a function of duration.
Hedge funds invest in a variety of investments, ranging from stocks, bonds, commodities, and others using complex structures, leverage, and more to boost returns. Don't miss out on news that could ...