Question

Imagine that you are faced with three hedging problems: A) You are a community bank making mortgages; B) You are an importer of French wines; and, C) You are an exporter to Japan. What is your cash position? The risk you face? And the hedge you will put on in the futures market?

Answer 1

Cash position is the position holded by bank in book with all inclusive amount at a specific time.The risk faced is very high .The hedge that will be put on the future market will be Future contracts can be valuable in constraining the hazard presentation that a speculator has in an exchange. The principle preferred position of taking an interest in a prospects contract is that it expels the vulnerability about the future cost of a thing. By securing a cost for which you can purchase or sell a specific thing, organizations can kill the uncertainty having to do with anticipated costs and benefits.

In some cases, if a ware to be supported isn't accessible as a prospects contract, a financial specialist will rather search out a fates contract in something that intently follows the developments of that ware, for instance purchasing wheat fates to fence the creation of grain.