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Describe a natural hedge and provide 5 examples of derivative securities?

Finance

Describe a natural hedge and provide 5 examples of derivative securities?

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A natural hedge is a risk management method in which investor/company seeks to invest in a negatively related securities to drive down the risk by investing in similar securities.
For example, a company which has a considerable amount of revenue coming from a single country (in one foreign currency), the company could mitigate this risk by also buying the raw materials (expenses) in the same currency. This is an example of natural hedge.

5 examples of derivative securities are:

  1. Forwards
  2. Futures
  3. Options
  4. Swaps
  5. Warrants