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What is Commodity Hedging Example Explained about?

1. When hedging a physical commodity transaction, one exchanges exposure to the risk of fluctuations in the absolute or "flat" price of the underlying asset for "basis risk," which is the risk posed by the price difference between the physical commodity and hedging financial contract. 2. For example, a company that has agreed to deliver oil in 3 months could hedge by selling futures contracts now to lock in a sale price and protect against falling oil prices over that time period, in exchange taking on bas

Author

Shaunny Bravo

Language

EN