Greatest Danger to Hedging with Futures (Case Study Sample)
i chose topic 1 :
Discuss the greatest danger to hedging with futures, and how firms have gone bankrupt using futures hedges
Please write a 500 words essay on one of the following topics:
1) Discuss the greatest danger to hedging with futures, and how firms have gone bankrupt using futures hedges
2) What’s the true cost of outsourcing IT departments?
3) Genetic testing in chronic pain patients
Futures Hedges Risks
Course Number and Name
Future Hedges Risks
Futures contracts are agreements between two parties to sell or acquire assets at a fixed price and for a predetermined time. The futures market is completely automated, allowing global investors to participate. Agricultural, metal, and index contracts are currently available in the futures markets. Market participants take advantage of the risk and pay the bare minimum to cover the transaction. Businesses use the need to protect themselves from future price volatility (Estévez & Urbano, 2020, p. 273). Airlines have been taking advantage of the market to protect themselves from the volatility of oil prices. The futures market in the United States is governed by the CFTC (Commodity Futures Trading Commission) and the NFA (National Futures Association). The essay looks at the risks and losses of using the futures market to protect a business from risks.
Margin of Losses
Loss margins pose a significant risk to market participants. Unlike
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