S3 4.5 Flashcards
1
Q
What is the purpose of hedging?
A
Reduce or eliminate price risk / offsetting price risk in the cash market via futures trading
2
Q
What do hedgers use the futures market for?
A
To protect themselves against adverse price changes
3
Q
Do Buyers of the commodity buy or sell futures?
A
Buyers buy futures (long hedge) against rising prices
4
Q
Do Sellers of the commodity buy or sell futures?
A
Sellers sell futures (short hedge) against falling prices
5
Q
What is riskier, a long or a short contract?
A
Short
