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A hedge is an investment that, to some degree, offsets another investment. So, if an investor wants to buy the stock of a Japanese company but doesn’t want any exposure to the Japanese Yen, then the investor could buy the stock but create a hedge by entering another investment whereby they agree to sell Yen at some point in the future. The investor would thus be exposed only to stock price move and not the value of the Yen (in theory, at least).

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