TeachMeFinance.com - explain Covering
Covering -- In foreign exchange dealings covering ordinarily
consists in paying one bill of exchange (draft) with
another. For example, a foreign exchange dealer in New
York draws and sells a bill on London due in 60 days. When
the bill matures (falls due) he takes it up (pays it) with a demand
bill (bill payable immediately) which he has purchased.
Again : A dealer in New York draws and sells a bill on London
and buys a bill on Paris for an equivalent amount which
he forwards to London in cover or discharge (in payment) of
the bill which he sold on London.
Covering also is a speculative term, meaning the act of buying stocks or commodities for the purpose of closing short
contracts in other words, buying back stocks or commodities
previously sold, but which were not possessed when sold.
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