This is “Questions About Hedging, Derivatives, and Trading Risks”, section 6.6 from the book Governing Corporations (v. 1.0).
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Increasingly, companies engage in hedging, derivative, and trading activities that involve substantial risks as part of their overall corporate strategy. Although hedging activities, with derivatives or other tools, may mitigate or resolve risky positions, hedges are rarely perfect. In addition, because of the sophisticated nature of hedging, derivative, and trading activities, the risk exposure of a company is difficult to define, complicating oversight of such activities by a board of directors.
At minimum, the board of a company engaging in hedging, derivative, or trading activities should ask the following questions: