Related Hedges (How do they work?)
In this type of strategy profit is made when the shares go down as your main position is the short trade of the common stock. The convertible instruments will tend to move in about the same direction as the underlying (what it can be converted to) but less violently as they are traded less (lower volatility and lower volume in the market on both sides), however, they are not being used to make a profit so much as to hedge against the stock going up. Since both the bonds and the preference shares are higher on the list to be repaid if the company declares bankruptcy and the bonds pay out a fixed amount of interest as well, both also help protect against problems that may occur with a long position in the common stock.  Essentially the plan with this strategy is to earn fixed income on the bonds whilst the stock price drops and then to sell both the bonds and buy the stock back on the market to cover the short position. If the prediction that the stock will fall is wrong then you are still earning fixed income on the debt and are able to convert it into stock at the higher price to cover the short sale eliminating, or reducing, the loss made on the short sale. Effectively the profit here is made on the spread between the price of the bond, accounting for the conversion price, and the price of the stock and that fixed income is less volatile (except usually in the junk market) than stock.
"&gt;How does ""doing business in"" something increase its value? By this logic, all businesses should be successful.  When you work, you are creating value. Even if your business fails within the first year, there's still all the value you have created such as: hiring handypeople to fix up your businessplace, hiring people to work at your business, buying office supplies, etc. Just because you didn't profit off of your business doesn't mean that other people didn't.   &gt;you're basically saying ""Things are currently like X, therefore things should (and would) be like X under a different legal structure.""  How do you think the concept of money came about?   &gt;I can't take this line of argument seriously, I'm sorry.  Why not? This is the reason that hedge fund managers and CEOs pay so little in taxes...most / all of their compensation is in stocks and bonds, taxed as investment income. If you were paid in gold, i'm sure you could claim the same.   &gt;You're emotionally invested in a fiat paper standard.  That's sillie: i'm emotionally invested in a gift economy. I *accept* a fiat paper standard." "Great response, thanks! I'll do my best to answer your questions.  1. I'm a genuine believer that everything, from calculus to charisma, can be taught to *most* people. Some people don't have the intelligence to ever learn calculus, for example, and some people will only ever be average at it. But most people can at least improve in most areas through education.   The messed up part is that professors are never formally taught to teach. Some of the things I listed I implicitly learned in grad school (e.g., when doing research, I learned how to filter out inaccurate information; when writing research papers, I learned how to organize information). I learned theories of motivation because I was in an org psych program, but I never learned how to apply them, especially in a classroom setting. I had to figure that out myself. But, yes, I do believe it's something that can be learned.   2. I think the vast majority of work related skills that people develop are learned on the job, as you mentioned. There are some generic skills students learn in college that can be applied to their work, however. I'm thinking of communication and social skills (although I'm probably biased, since those are the two topics I teach). College, it seems to me, is more about learning how to follow directions, figure things out for yourself, and work effectively in groups than any particular subject matter. And I think those skills do transfer well to the workplace.   3. I 100% agree with this. We're pressured to pass students and inflate grades. Character issues, including being disorganized, being dishonest, or just being rude, are diagnosed as psychological disorders and we have to ""accommodate"" students with these ""disabilities"" (to be clear, I 100% believe in psychological disorders, and I 100% support accommodating students with these disorders- I just think they are over-/ misdiagnosed these days).    Totally agree with your last paragraph." "When you invest in an S&P500 index fund that is priced in USD, the only major risk you bear is the risk associated with the equity that comprises the index, since both the equities and the index fund are priced in USD. The fund in your question, however, is priced in EUR. For a fund like this to match the performance of the S&P500, which is priced in USD, as closely as possible, it needs to hedge against fluctuations in the EUR/USD exchange rate. If the fund simply converted EUR to USD then invested in an S&P500 index fund priced in USD, the EUR-priced fund may fail to match the USD-priced fund because of exchange rate fluctuations. Here is a simple example demonstrating why hedging is necessary. I assumed the current value of the USD-priced S&P500 index fund is 1,600 USD/share. The exchange rate is 1.3 USD/EUR. If you purchase one share of this index using EUR, you would pay 1230.77 EUR/share:  If the S&P500 increases 10% to 1760 USD/share and the exchange rate remains unchanged, the value of the your investment in the EUR fund also increases by 10% (both sides of the equation are multiplied by 1.1):  However, the currency risk comes into play when the EUR/USD exchange rate changes. Take the 10% increase in the price of the USD index occurring in tandem with an appreciation of the EUR to 1.4 USD/EUR:  Although the USD-priced index gained 10%, the appreciation of the EUR means that the EUR value of your investment is almost unchanged from the first equation. For investments priced in EUR that invest in securities priced in USD, the presence of this additional currency risk mandates the use of a hedge if the indexes are going to track. The fund you linked to uses swap contracts, which I discuss in detail below, to hedge against fluctuations in the EUR/USD exchange rate. Since these derivatives aren't free, the cost of the hedge is included in the expenses of the fund and may result in differences between the S&P500 Index and the S&P 500 Euro Hedged Index.  Also, it's important to realize that any time you invest in securities that are priced in a different currency than your own, you take on currency risk whether or not the investments aim to track indexes. This holds true even for securities that trade on an exchange in your local currency, like ADR's or GDR's. I wrote an answer that goes through a simple example in a similar fashion to the one above in that context, so you can read that for more information on currency risk in that context.  There are several ways to investors, be they institutional or individual, can hedge against currency risk. iShares offers an ETF that tracks the S&P500 Euro Hedged Index and uses a over-the-counter currency swap contract called a month forward FX contract to hedge against the associated currency risk. In these contracts, two parties agree to swap some amount of one currency for another amount of another currency, at some time in the future. This allows both parties to effectively lock in an exchange rate for a given time period (a month in the case of the iShares ETF) and therefore protect themselves against exchange rate fluctuations in that period.  There are other forms of currency swaps, equity swaps, etc. that could be used to hedge against currency risk. In general, two parties agree to swap one quantity, like a EUR cash flow, payments of a fixed interest rate, etc. for another quantity, like a USD cash flow, payments based on a floating interest rate, etc. In many cases these are over-the-counter transactions, there isn't necessarily a standardized definition.  For example, if the European manager of a fund that tracks the S&P500 Euro Hedged Index is holding euros and wants to lock in an effective exchange rate of 1.4 USD/EUR (above the current exchange rate), he may find another party that is holding USD and wants to lock in the respective exchange rate of 0.71 EUR/USD. The other party could be an American fund manager that manages a USD-price fund that tracks the FTSE. By swapping USD and EUR, both parties can, at a price, lock in their desired exchange rates.  I want to clear up something else in your question too. It's not correct that the ""S&P 500 is completely unrelated to the Euro."" Far from it. There are many cases in which the EUR/USD exchange rate and the level of the S&P500 index could be related. For example: Troublesome economic news in Europe could cause the euro to depreciate against the dollar as European investors flee to safety, e.g. invest in Treasury bills. However, this economic news could also cause US investors to feel that the global economy won't recover as soon as hoped, which could affect the S&P500.  If the euro appreciated against the dollar, for whatever reason, this could increase profits for US businesses that earn part of their profits in Europe. If a US company earns 1 million EUR and the exchange rate is 1.3 USD/EUR, the company earns 1.3 million USD. If the euro appreciates against the dollar to 1.4 USD/EUR in the next quarter and the company still earns 1 million EUR, they now earn 1.4 million USD. Even without additional sales, the US company earned a higher USD profit, which is reflected on their financial statements and could increase their share price (thus affecting the S&P500). Combining examples 1 and 2, if a US company earns some of its profits in Europe and a recession hits in the EU, two things could happen simultaneously. A) The company's sales decline as European consumers scale back their spending, and B) the euro depreciates against the dollar as European investors sell euros and invest in safer securities denominated in other currencies (USD or not). The company suffers a loss in profits both from decreased sales and the depreciation of the EUR.  There are many more factors that could lead to correlation between the euro and the S&P500, or more generally, the European and American economies. The balance of trade, investor and consumer confidence, exposure of banks in one region to sovereign debt in another, the spread of asset/mortgage-backed securities from US financial firms to European banks, companies, municipalities, etc. all play a role.  One example of this last point comes from this article, which includes an interesting line: Among the victims of America’s subprime crisis are eight municipalities in Norway, which lost a total of $125 million through subprime mortgage-related investments. Long story short, these municipalities had mortgage-backed securities in their investment portfolios that were derived from, far down the line, subprime mortgages on US homes. I don't know the specific cities, but it really demonstrates how interconnected the world's economies are when an American family's payment on their subprime mortgage in, say, Chicago, can end up backing a derivative investment in the investment portfolio of, say, Hammerfest, Norway." "Even if the price of your home did match inflation or better — and that's a question I'll let the other answers address — I propose that owning a home, by itself, is not a sufficient hedge against inflation. Consider: Inflation will inflate your living expenses. If you're lucky, they'll inflate at the average. If you're unlucky, a change in your spending patterns (perhaps age-related) could result in your expenses rising faster than inflation. (Look at the sub-indexes of the CPI.) Without income also rising with inflation (or better), how will you cope with rising living expenses? Each passing year, advancing living expenses risk eclipsing a static income. Your home is an illiquid asset. Generally speaking, it neither generates income for you, nor can you sell only a portion. At best, owning your principal residence helps you avoid a rent expense and inflation in rents — but rent is only one of many living expenses. Some consider a reverse-mortgage an option to tap home equity, but it has a high cost. In other words: If you don't want to be forced to liquidate [sell] your home, you'll also need to look at ways to ensure your income sources rise with inflation. i.e. look at your cash flow, not just your net worth. Hence: investing in housing, as in your own principal residence, is not an adequate hedge against inflation. If you owned additional properties to generate rental income, and you retained pricing power so you could increase the rent charged at least in line with inflation, your situation would be somewhat improved — except you would, perhaps, be adopting another problem: Too high a concentration in a single asset class. Consequently, I would look at ways other than housing to hedge against inflation. Consider other kinds of investments. ""Safe as houses"" may be a cliché, but it is no guarantee." The funny thing is  - this is total bullshit, the major assumption underlying VAR along with many other financial products is that your assets have a certain correlation to oneanother, and you calculate your risk hedges on this assumption. VAR is a terrible way of managing firmwide risk, and always will be, because it doesn't protect you from a deleveraging environment, when all asset values fall and former inverse correlations don't protect you anymore. I deleted my previous comment. Here's an illustration:  Let's say you're betting in a horse race. This horse race allows anyone who's willing to take bets during the race to do so.  So you bet on horse A Another guy bets on horse B  Your horse (a) runs the race normally.  The guy on horse B, however, notices his horse will lose but that C is going to win.  So he sends a bunch of his friends to the ticket counter ahead of time. Then, when he wants to be on C he just has a friend bet for him. He can do that while you're stuck at the back of the line.   In the market, they can distribute the orders among each other in the same way. The friends are just servers but they let everyone know when the orders are coming in. They don't know before he places the order but once he does they're already in line faster than you can be in line. When you set up a short sale for equities you are borrowing stock from someone else; typically another client at the broker.  The broker usually buries an agreement to let your shares be borrowed for short sales in your account details.  So if Client A wants to short a stock, he borrows stock from Client B to do the short sale (it's usually not this direct as they can borrow from many clients).  If Client B then wants to sell his shares; if the broker can't shift around assets to find another client's shares to let Client A borrow; then he has to close the short position out because he doesn't have the shares in the brokerage to let Client A borrow to short anymore. What keshlam said is correct. In bookkeeping terms, what you are doing is transferring value from some kind of cash account (which may in turn be backed by a loan) to an asset. Effectively, you are exchanging one asset for another. That asset you are exchanging to is the land that you are buying, which has some value, and which should end up on the asset side of your balance sheet. Unfortunately, particularly with fixed assets where no two ones are alike, such as land, it's often very hard to know the exact value unless and until you sell it. An appraiser can get you an estimate, but only sealing a deal with an actual buyer can get you an exact value, and at that point, the asset is no longer yours.