4
Hedging Strategies Using Futures
After completing this chapter, you will be able to answer the following questions:
- What is the major motive in hedging?
- How to hedge using futures?
- What are the risks in hedging?
- What is hedge ratio?
- How to calculate the number of futures contracts to be used for hedging?
In Chapter 3, the basics of futures and how they can be traded were explained. One of the major reasons for the existence of futures contracts is that they can be used for hedging. Hedgers are the major participants in futures markets. The idea behind hedging is to use futures markets to reduce the hedger’s risk. This risk could be commodity price risk, currency exchange rate risk, interest rate risk, or the level of the stock market. As ...
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