AREC 384 hedging

  1. who participates in futures markets?
    • brokers
    • hedgers
    • speculators
  2. broker
    person/firm that handles futures (and options) transactions
  3. hedgers
    person/corporation involved in a business sense in the underlying commodity whose futures contract is being transacted
  4. speculators
    • professional trader, no direct involvement in underlying commodity but is hoping to profit from the risk-aversion of hedgers
    • exploits price variability
  5. hedging
    risk management strategy that involves taking opposite positions in the futures and cash markets
  6. a selling hedge
    • begins by selling futures contracts now and buying the contracts later when the goods are sold in the spot market
    • "short position" in futures market
    • "long position" in cash market
  7. a buying hedge
    • begins with a person buying futures contracts now and selling the contracts later when the goods are purchased in the spot market
    • "long position" in futures market
    • "short position" in cash market
Author
hcunning
ID
324930
Card Set
AREC 384 hedging
Description
lecture 12
Updated