abhishreshthaa
Abhijeet S
Price Risks
The two major economic functions of a commodity futures market are price risk management and price discovery.
The need for price risk management, through what is commonly called "hedging", arises from price risks in most commodities.
The larger, the more frequent and the more unforeseen is the price variability in a commodity, the greater is the price risk in it.
Insurance companies offer suitable policies to cover the risks of physical commodity losses due to fire, pilferage, transport mishaps, etc., they do not cover similarly the risks of value losses resulting from adverse price variations.
Hence, the need for price risk management or hedging through the use of futures contracts.
The two major economic functions of a commodity futures market are price risk management and price discovery.
The need for price risk management, through what is commonly called "hedging", arises from price risks in most commodities.
The larger, the more frequent and the more unforeseen is the price variability in a commodity, the greater is the price risk in it.
Insurance companies offer suitable policies to cover the risks of physical commodity losses due to fire, pilferage, transport mishaps, etc., they do not cover similarly the risks of value losses resulting from adverse price variations.
Hence, the need for price risk management or hedging through the use of futures contracts.