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Cross hedging involves using a related but different asset to hedge against potential losses in a primary asset. By taking a position in a correlated asset, businesses can mitigate the impact of currency fluctuations or price changes that affect their primary transaction exposure. For example, if a company expects to receive payments in a foreign currency, it might hedge by taking a position in a currency with a strong correlation to that currency, thus reducing overall risk. This strategy can help stabilize cash flows and protect profit margins from adverse market movements.

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2d ago

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