Hedging
Risks that can be hedged by using derivatives: | changes in foreign exchange rates EUR/USD, GBP/USD, USD/CHF, USD/RUB, etc. | | changes in energy prices Brent Crude Oil; Gasoil (ICE); Gasoline Euro-bob; European 1% Fuel Oil (CME Clearport), etc. | | changes in agricultural product prices corn, wheat, coffee,cocoa, soy, palm oil, etc./td> | | changes in precious and industrial metal prices gold, silver, platinum, copper, zinc, etc. | | interest rate hike 3 month US Dollar interest rate |
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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