by Michael Arbow MBA
Partner, RSD Solutions Inc.
One could argue that for the Western free democratic world, its hedge strategy for peace and global harmony is the US military machine which with a price tag of $700 billion per year is an expensive form of insurance. However, as the US’s reluctance to provide a “no-fly” zone over Libya has demonstrated (to some), the risk parameters of the US government are changing and the desire to use the insurance that the US taxpayers have provided the world is dwindling. At one time “humanitarian interventions” – going into jurisdictions, like Kosvo, where the citizens were being prosecuted – was deemed acceptable and a done deal. No longer.
So, it appears that the US is paying for a form of risk management beyond its needs or willingness to use. Is this the situation in your firm? Are you over-hedging or alternatively are you paying for a hedging strategy that you will not likely use? In the case of the US, if your risk profile changes so to should the required hedge.
For more information on the topic, follow the link below to an Economist article:
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