As per the Reserve Bank of India (RBI), hedging refers to taking positions in financial instruments to mitigate identifiable and measurable risks, particularly those arising from foreign exchange rate fluctuations, interest rate movements, or commodity price volatility.
- Identifiable: The risk must be known or recognized.
- Measurable: The extent of the risk can be quantified, which is essential for effective risk management and the application of financial instruments like forwards, futures, or options.
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