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In the real-world, financial decisions are irrelevant, so there is really no reason for firms to hedge. An investor that expects to buy bonds in

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In the real-world, financial decisions are irrelevant, so there is really no reason for firms to hedge. An investor that expects to buy bonds in the future would use a short hedge to protect against interest rate changes. An investor who expects to sell stock at a later date would use a short hedge to protect against stock price movements. A hedge of a specific stock's price with stock index futures will reduce both systematic and unsystematic risk

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