Question

Which of the following are examples of hedging? More than one answer is possible.

1. A wheat farmer shorting wheat.

2. A restaurant chain buying long cattle futures.

3. A middle eastern oil producing country shorting oil futures.

4. A hedge fund going long oil futures.

Answer 1

please find below the solution.. let me know if you need any clarification.

correct options are :

1. A wheat farmer shorting wheat.

2. A restaurant chain buying long cattle futures.

3. A middle eastern oil producing country shorting oil futures.

all above 3 are example of heading. Farmer want to lock in price of its wheat. Restaurant may want to hedge price of cattle from rise in future. Oil company producer want to lock in price for their future production of oil.

Hedge fund generally dont hedge they do speculation.