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Don’t let the term fool you — a “haircut” in finance has nothing to do with hairstyles or trimming expenses. In finance, a haircut generally refers to the reduction of the value of an asset. This term has different implications, depending on the context.
This article will explore the different meanings of the term haircut finance and how they can impact various participants, financial instruments and markets. It will also provide examples of haircuts, as well as how to use them to manage risk.
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