3.3. Hedging as Holding Financial DerivativesSeveral studies such as [26] [27] , and [41] [42] have defined hedging as holding the derivative instruments to reduce the covariance between firm’s value and value of an underlying asset subject to market fluctuations (interest rate and exchange rates). This definition is different from as explained by general definition by [18] . When we talk about holding financial derivatives authors are interested in investigating the effects of linear vs. non-linear instruments [26] . Further, authors defining hedging as holding the derivatives are also interested in the effect of linear vs. non-linear hedging2.The definition of hedging as holding financial derivatives does not include information asymmetry and moral hazard problems. Hedging as holding derivative instruments may investigate the effects of having different derivatives instruments in a firm’s portfolio.