, Columnist
Hedge Funds Help Companies Hedge
Deal-contingent hedges, T+1 pains, taxi insurance, cell phones, leveraged ETFs and Nanjing-style salted ducks.
This is cool:
The idea of a deal-contingent hedge is that, if a company signs a deal to acquire another company, that deal won’t close for a few months, and when it does, the buyer will need to come up with the money. This might involve borrowing the money and/or converting it from the buyer’s currency into the target’s. This creates risk: Between signing and closing, the exchange rate might move against the buyer, or interest rates might go up. The buyer might want to hedge this risk by locking in an interest rate or an exchange rate at the time of signing.