Asked by Barbara silva on May 28, 2024
Verified
The text discusses using futures, forwards, and swaps to hedge. For each, give a specific example of a firm that needs to hedge and how it might use the contracts to do so. (For example a wheat farmer needs to sell wheat, thus sells futures to lock in a price at harvest.)
Futures
Standardized contracts to buy or sell a specific asset at a predetermined price at a specified future date, used for hedging or speculation.
Forwards
A contract between two parties to buy or sell an asset at a specified price on a future date.
Swaps
Agreements to exchange two securities or currencies.
- Master the art of assessing and employing hedging approaches in actual cases to control financial risk.
- Learn about the basic concepts of financial risk management and how it aims to stabilize a business's cash flows and costs.
Verified Answer
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Tammy WagmanMay 28, 2024
Final Answer :
This question is open-ended, limited only by the student's creativity.
Learning Objectives
- Master the art of assessing and employing hedging approaches in actual cases to control financial risk.
- Learn about the basic concepts of financial risk management and how it aims to stabilize a business's cash flows and costs.