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Navigate the complex world of currency management with our comprehensive dictionary of financial terms and definitions.

Hedging Instrument

A hedging instrument is a financial derivative, usually a forward contract, used in FX hedging. When currency rates change, the hedging instrument creates an offsetting financial position that compensates the corresponding change in the hedged currency exposure. In Hedge Accounting, companies must provide documentation regarding the inverse relationship between the change in the value of the hedged item and the change in the value of the hedging instrument.