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If world oil prices were quickly swinging for the last few years because of the decline...

If world oil prices were quickly swinging for the last few years because of the decline in the U.S. dollar, changes in supply and demand how would hedging help with protecting (a random company’s) income in this case, how would you manage output so that you can maintain higher prices?
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Answer #1

Definition: Hedging is a transfer of risk without buying insurance policies. Us dollar depreciating means that exports will become attractive from host country and if it importing then it will suffer loss.

Long: Buy

Short: Sell

Hedging offers a solution. If dollar is further expected to appreciate then going long on dollar will help. If dollar is expected to depreciate then short it today and take a long position.

Same thing can be done for oil. Oil if expected to go up then going long will benefit.

Output can be managed by maintaining inventory levels and also by making collusive oligopoly (cartels) as done by OPEC-organization of petroleum exporting countries.

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