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To comply with laws and regulations, SD processes are executed for clients to certain counterparties in hedging transactions. The process involves the implementation of anti-money laundering and know-your-customer (KYC) assessments, including: Any hedging strategy involves costs. So, before opting for coverage, ask yourself if the potential benefits justify the costs. Remember that the purpose of coverage is not to make money; It`s supposed to protect against loss. The cost of hedging, whether it`s the cost of an option – or the shortfall because it`s on the wrong side of a futures contract – cannot be avoided. Suppose six months pass and the farmer is ready to harvest and sell his wheat at the prevailing market price. Indeed, the market price has fallen to just $32 per bushel. He sells his wheat for this price. In practice, coverage takes place almost everywhere. For example, if you buy homeowners` insurance, you protect yourself from fires, burglaries, or other unforeseen disasters. What is a hedging contract? A hedge agreement is essentially an agreement between two or more parties who have decided to exchange cash flows in order to reduce losses and thus make a profit. This agreement may also exist between hedge fund organisations and investors when a hedge fund partnership takes place between them.
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