Definition for : Self-hedging

Self-Hedging, one of the Financial risk management tools, consists in not Hedging a Risk. This is a reasonable strategy only for very large groups. Such groups assume that the law of averages applies to them and that they are therefore certain to experience some negative events on a regular basis, such as devaluations, customer Bankruptcy, etc. Risk thus becomes a certainty and, hence, a Cost. As a part of self-Hedging, companies sometimes set up captive Insurance companies. See also Natural hedge.

(See Chapter 49 Managing working capital of the Vernimmen)

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