Question

Can someone explain briefly if the forward prices in the energy markets have upward biases and...

Can someone explain briefly if the forward prices in the energy markets have upward biases and why is that the case? (answer with an example would be much better, thx:) )

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

In most of the countries, energy industry is deregulated which leads to considerable amount of trading activity, in both the spot and trading market. Due to the involvement of price risk factor, prices are protected by hedging in the form of forward and future contracts.

Energy has a unique feature of non-storability. Therefore, the prices are driven by the spot production and consumption of the commodity. It leads to inelastic demand in the short term market. In the optimal hedging strategies, forward prices are compared to future spot prices and the increase in forward premiums are either due to rise in expected demand or demand risk.

Thus, short term forward contracts are upward biased indicator of future spot prices in accordance with the high volatility and risk associated with the energy sector.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Explain in your pwn words why managers in organizational practice often have cognitive biases when it...
Explain in your pwn words why managers in organizational practice often have cognitive biases when it comes to decision-making ( bounded rationality) you can use the online simulation as an example
Could someone answer these questions briefly? 1) Describe a competitive firms supply curve, and explain why...
Could someone answer these questions briefly? 1) Describe a competitive firms supply curve, and explain why it is upward sloping. Also, explain why a competitive firm faces a horizontal marginal revenue curve. 2) What are long-run economic profits equal to in a competitive market (be sure to explain why and to not just give a number)? Also, explain why in long-run equilibrium price in a competitive market is equal to the minimum of average total cost.
Prices of bond futures can be used to access the markets expectations about future interest rates...
Prices of bond futures can be used to access the markets expectations about future interest rates and therefore can be used as the basis for pricing other financial securities. A 10-year annual coupon bond with face value $1,000 is currently selling for $919. The futures price of this bond for delivery in 1 year is $888. The bond pays coupon of $88 annually. Assume that the coupon is paid before the delivery of the bond. (a) What is the 1-year...
Prices of bond futures can be used to access the markets expectations about future interest rates...
Prices of bond futures can be used to access the markets expectations about future interest rates and therefore can be used as the basis for pricing other financial securities. A 10-year annual coupon bond with face value $1,000 is currently selling for $919. The futures price of this bond for delivery in 1 year is $888. The bond pays coupon of $88 annually. Assume that the coupon is paid before the delivery of the bond. (a) What is the 1-year...
a) Explain how markets can work as a decentralized coordination mechanism linking buyers and sellers. In...
a) Explain how markets can work as a decentralized coordination mechanism linking buyers and sellers. In the process, make sure you… i) Explain how prices can both provide information and motivation to buyers and sellers. ii) Explain how markets differ from central planning b) What if prices send the wrong signal, however? i) Explain the concept of externality and why the existence of externalities might be problematic. ii) Give one example of an externality, explaining how it makes the price...
why might it be argued that recent changes in international prices of food and energy have...
why might it be argued that recent changes in international prices of food and energy have had a smaller impact on the U.S economy than would have been the case under the pre 1973 pegged rate systems?
Can someone briefly explain why visceral pleurae receive autonomic nerve innervation which produces dull and poorly...
Can someone briefly explain why visceral pleurae receive autonomic nerve innervation which produces dull and poorly localised pain whereas parietal pleurae receive somatic nerve innervation and the pain is sharp and severe. Thanks!
Can someone please explain to me in the simplest way, how to go about solving a...
Can someone please explain to me in the simplest way, how to go about solving a mathematical proof? For example, mathematical proofs involving rational/real numbers and integers. I find them hard to solve and would like to get better at them.
Briefly explain how RFID can be used to manage inventory. In your answer, please explain why...
Briefly explain how RFID can be used to manage inventory. In your answer, please explain why item-level tagging is more expensive than case-level tagging. What might be some benefits of item-level tagging over case-level tagging?
At least 300 words: Now that you have a better idea about how markets work, you...
At least 300 words: Now that you have a better idea about how markets work, you can do a little mental forecasting. You can ask yourself “how do I expect prices to change in this situation?”   Take the market for housing and the current situation we are in with the pandemic.   What do you expect to happen to home prices over the upcoming months: rise, fall, not change? In real estate lingo do you think this will be a buyer’s...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT