It is an act, in which an investor seeks to protect a
position or anticipated position in spot market by using an
apposite in derivities.

hedging approach we gather the working capital from the 
long term sources when ever firm need more working capital 
more than actual they procure from short term sources is 
called hedging.

In finance, a hedge is an investment that is taken out 
specifically to reduce or cancel out the risk in another 
investment. Hedging is a strategy designed to minimize 
exposure to an unwanted business risk, while still allowing 
the business to profit from an investment activity. 
Typically, a hedger might invest in a security that he 
believes is under-priced relative to its "fair value" (for 
example a mortgage loan that he is then making), and 
combine this with a short sale of a related security or 
securities. Thus the hedger is indifferent to the movements 
of the market as a whole, and is interested only in the 
performance of the 'under-priced' security relative to the 
hedge.
2).Process of protecting oneself against unfavorable 
changes in prices. Thus one may enter into an offsetting 
purchase or sale agreement for the express purpose of 
balancing out any unfavorable changes in an already 
consummated agreement due to price fluctuations. Hedge 
transactions are commonly used to protect positions in (1) 
foreign currency, (2) commodities, and (3) securities.

In finance, a hedge is an investment that is taken out 
specifically to reduce or cancel out the risk in another 
investment. Hedging is a strategy designed to minimize 
exposure to an unwanted business risk, while still allowing 
the business to profit from an investment activity. 
Typically, a hedger might invest in a security that he 
believes is under-priced relative to its "fair value" (for 
example a mortgage loan that he is then making), and 
combine this with a short sale of a related security or 
securities. Thus the hedger is indifferent to the movements 
of the market as a whole, and is interested only in the 
performance of the 'under-priced' security relative to the 
hedge.
2).Process of protecting oneself against unfavorable 
changes in prices. Thus one may enter into an offsetting 
purchase or sale agreement for the express purpose of 
balancing out any unfavorable changes in an already 
consummated agreement due to price fluctuations. Hedge 
transactions are commonly used to protect positions in (1) 
foreign currency, (2) commodities, and (3) securities.

prasanna gave a good answers plz continue for ever

your truly........

Assets are financed against the source of financing having 
the same maturity.
 A method of financing where assets would be offset with a 
financing instrument of the same approximate maturity.

Headging means minimising the risk

it is a risk reducing investment strategy involving 
transactions of a simultaneous but opposing nature so that 
effect of one is likely to counterbalance the effect of 
other. With reference to appropriate financin mix,the term 
hedging can be sid to reffer to process of matching 
maturities of debt with maturities of financial needs. This 
approach to the financing decision to determine an 
appropriate financing mix is, therefore, also called as 
matching approach.

acording to tjis approach, the maturity of the sources of 
funds should match the nature of the assets to be 
financed.for the purpose of the analysis, the current 
assets can be classified into two broad classes:-
1) those which are required in a certain amount for a given 
level of operation and, hence, do not vary over time.
2) those which fluctuate over time.

the hedgindg approach suggests that long term hands should 
be used to finance the fixed portion of the current assets 
requirements as spelt out in (1) above, in a manner similar 
to the financing of fixed assets. the purely temprarily 
requirements, that is, tyhe seasonal variations over above 
the permanent financing needs should be appropriately 
finanaced with short term funds(current liabilities). This 
approach, therefore, divies the requirements of the total 
funds into permanent and seasonal components, each bein 
financed by different source.

Hedging means "Moving from risky assets to riskless assets"
in this it minimises the risk.

A transaction that reduces the risk of an investment.

HEDGING IS A TOOL TO MINIMIZE THE RISK....