Hedge Agreement

Definition:

An agreement entered into to offset financial risk/reduce the risk of adverse price movements in an asset. Examples of a Hedge Agreement include where a party owns stock, then sells a Futures Contract stating that it will sell the stock at a set price, therefore avoiding market fluctuations. An Interest Rate Swap agreement is also a Hedge Agreement where two parties exchange periodic interest payments, commonly a Fixed Rate for a Floating Rate in order to protect against or speculate on changes in Interest Rates.

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