HedgingRisks that can be hedged by using derivatives:
Hedging can be used by all market participants - exporters, importers, producers and suppliers. A producer can hedge a price rise of raw materials, a trade company - a price drop between an initial purchase and a subsequent sale. Import businesses interested in stable purchase prices can hedge against possible price hikes when entering into a new agreement, etc.
To minimize price risks when entering into an agreement an offsetting derivatives position must be opened.
If a commodity price falls, then a proﬁt from a futures contract sale will compensate this loss and vice versa.
EXAMPLE: OIL BUSINESS HEDGING
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