Capitalist institutions include risk management schemes that provide insurance, hedging, and diversification.

But currency values are driven by macroeconomic developments, and therefore FX does offer natural hedging opportunities in liquid and transparent markets.

Whereas guarding against uncertainty had traditionally been a moral issue, hedging against risk is a purely technical question.

Back in the early 1980 s, financial engineers invented portfolio insurance, a fancy active hedging strategy for controlling downside risk.

so we're hedging our bets here.

Their currency may depreciate, but the risk of default is absent.

The resulting perception that currency risk was declining bolstered capital inflows further.

Here the risk involves currency wars and other beggar thy neighbor disruptions.

Investors, of course, are hedging their bets.

The fund could also be used to transfer risk abroad, by taking advantage of the world hedging market which, for a fee, provides insurance against unexpected revenue fluctuations.

Accompanied by a strong, broad eurozone, risk of a future currency crisis remains.

It took a long time, but the contagion of a sound financial idea has been unmistakable. GDP linked bonds would also allow hedging the risk of inflation, plus respond to GDP growth.

Low inflation, no currency risk, decreased transaction costs, and greater transparency have made the euro a success.

The situation has become quite tense, with talk of currency wars and a real risk of financial protectionism.

They thus provide an important instrument for hedging price risks in commodity markets.

TOKYO The risk of global currency and trade wars is rising, with most economies now engaged in competitive devaluations.

And they can be disastrous to exporting economies, which risk rapid currency appreciation and thus a loss of competitiveness.

Nevertheless, the West appears to be hedging its bets by sustaining contacts with the opposition.

But, while such hedging is natural in world politics, modesty is important for both sides.

In the event of an increase in a commodity s price, a finance minister who has done a perfect job of hedging export price risk on the futures market will suddenly find himself accused of having gambled away the national patrimony.

Conscious of the volatility of the currency exchange markets and the significant risk that unanticipated exchange rate changes have on operations, management will continue to assess and manage the risks posed by volatile currency fluctuations.

Or it can let its currency appreciate, at the risk of inducing a growth slowdown and political and social unrest at home.

These investors can, in turn, be encouraged when financial hedging devices and financial diversification protect them.

But it would be a mistake to focus only on the hedging part of American strategy.

As a result, investors and depositors have learned that the erection of financial barriers within the currency area is indeed a genuine risk.

In short, there are better ways than gold to hedge inflation risk and exchange rate risk. TIPS, or their equivalent from other governments, provide safe inflation hedges, and explicit currency futures can offset exchange rate risks.

No risk factor is more dangerous for a currency than policymakers refusal to face fiscal realities until European officials do, the euro remains vulnerable.

The second historical rule of thumb is that currencies on the decline tend to overshoot near the bottom, international currency speculators require a substantial risk premium out of the fear that the currency crash might trigger something even worse.

For example, a German investor would consider United States bonds to have more currency risk than German bonds (since the dollar may go down relative to the euro) similarly, a United States investor would consider German bonds to have more currency risk than United States bonds (since the euro may go down relative to the dollar).

Leaving the common currency would, of course, threaten collateral damage for the exiting country and raise the risk of contagion for other weak eurozone members.

China can maintain its currency practices, but at the risk of large global macroeconomic imbalances and a major political backlash in the US and elsewhere.

These markets can become a strong source of financing for longer term domestic investment, including in infrastructure, thereby reducing currency risk for borrowers and investors.

In the first scenario, a more united and homogeneous Europe emerges from the crisis, enforcing greater restrictions on member states budgets to reduce apparent risk. Accompanied by a strong, broad eurozone, risk of a future currency crisis remains.

In part, this reflects political hedging by the MILF in the face of Manila s incapacity to make meaningful concessions.

The longer the US postpones the day of reckoning, the greater the risk to the dollar s global standing as the world s main reserve currency, and to the attractiveness of US government bonds as the true risk free financial benchmark.

But building institutions takes time, which is in dangerously short supply, given the risk of bank runs, sovereign debt crises, and the collapse of the single currency.

TOKYO The risk of global currency and trade wars is rising, with most economies now engaged in competitive devaluations. All are playing a game that some must lose.

Unfortunately, when global stock markets crashed in October 1987, the insurance turned out to be useless, mainly because markets for hedging collapsed.

At the same time, oil hedging not only raises oil prices but results in huge reserves of cash in oil producing countries.

Peter Kenen argued in the late 1960 s that without exchange rate movements as a shock absorber, a currency union requires fiscal transfers as a way to share risk.

With little sign of improved economic fundamentals, rapid currency appreciation is a potentially dangerous development for China in part owing to the risk of an abrupt and painful reversal.

While China has taken minor measures to slow the increase in its dollar denominated holdings, it has been unwilling to risk a fully convertible currency for domestic political reasons.

To believe that any country issuing debt in its own currency is risk free as long as the exchange rate is flexible is astonishingly naive. For one thing, there is still inflation risk, particularly for countries with weak fiscal institutions and heavy debt burdens.

Some of the ideas discussed during the consultations include suggestions for mechanisms to mitigate regulatory risk to increase the role of the World Bank and regional development banks in risk mitigation through increasing the leverage for their guarantees and to strengthen local currency lending.

Most telling is that Britain, which retained control of its currency, enjoys the lowest yields in its history, while the risk premium on Spanish bonds is at a new high.