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Technology Stocks : Advanced Micro Devices - Moderated (AMD)
AMD 207.530.0%9:30 AM EST
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To: AK2004 who wrote (10350)9/26/2000 10:53:10 PM
From: brushwudRead Replies (1) of 275872
 
re: the company's large amount of U.S. dollar-based sales and Euro-based costs act as a natural hedge against fluctuations in the value of the Euro and the U.S. dollar.

I wonder how that works? Sounds like a bet rather than a hedge.


No, it's actually true. Hedging currencies is like buying insurance, or buying listed stock options, for that matter. The ones who profit are those who write (sell) those instruments. They make money on average, but have to bear large losses on occasion. The buyers, on average, are paying a nominal fee for protection against those occasional large losses.

Think of a company with a nationwide fleet of cars--it has no need to buy collision insurance like the man in the street. Or think of a company with thousands of employees--it doesn't need to buy full-coverage health insurance like a small business, because it can self-insure, paying all costs directly & maybe only a small premium for unusual catastrophic losses. A company with worldwide operations is diversified enough not to need to pay for protection from currency fluctuations.
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