The hedge ratio is a financial metric that quantifies the proportion of an asset or liability that is hedged in order to minimize risk, particularly against fluctuations in currency exchange rates. It is a crucial tool for companies managing foreign exchange exposure, allowing them to determine the ideal amount of hedging needed to offset potential losses from adverse currency movements. By establishing an appropriate hedge ratio, firms can protect their revenues and expenses from volatility in the foreign exchange market.
congrats on reading the definition of Hedge Ratio. now let's actually learn it.