Sunday, July 25, 2010

True cost of hedging

An interesting article from McKinsey on hedging (The right way to hedge) tells that apart from general buy and ask spread cost that's associated to hedging, there are more indirect cost to it as well which needs to be considered. The following exhibit shows the other variables. 

The details of what these indirect costs mean and what should the overall strategy for hedging should be has been discussed in the article. 

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