Chapter 9: Hedging commodities and exchange rates
The uncertainty arising from the volatility in commodity prices and exchange rates is of concern to management because of the possible negative impact on revenue, and hence profitability, for a company and its projects. The revenue is the product of the realised price times the volume of the commodity sold. As most commodities are sold in US dollars, the exchange rate for countries such as Australia at the time the commodities are sold is very important.
Commodity prices are also beyond the control of mining companies and, as budgets and plans are based on future commodity prices, the uncertainty adds to the difficulty of future planning.
Futures markets for commodities ...