Hedging is where we try to make a firm less vulnerable to changes in the price or rate. Derivative securities are an asset that represents a right to another financial asset. To be able to control financial risk, we must determine the types of changes in the price that will have a large impact on the value of a firm. Risk profile is a graph that shows how the value of a firm is affected by changes in the price or rate. Partnering with a firm would help reduce through contracts: set a fixed price ahead of time, cannot be affected. It is not possible to create a flat risk profile, but we can reduce risk. The goal is to reduce the risk to more manageable levels which will flatten the risk profile. Two categories: short run- causes temporary changes are the first. Long run is where there are more permanent changes.