While political risks cannot be hedged directly, Shilton Capital could address Hatchett's issues through insurance, currency swaps, or a combination of both. It is impossible to know exactly what could happen, but trouble comes when the currency falls for whatever reason, so the key is creating a hedge in the event that the currency falls, rather than trying to predict which disasters to prepare for. Cline's risks could be hedged with swaps, though this technique would eat into the profitability of the strategy. Wainwright's political risks would be extremely difficult to hedge away. It is very difficult to hedge away the risks of political change or a change in customers' perceptions of the market |
