how?
- Thread starter Rikardu
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i would give you a simple example:
A farmer has a produce of 20 tons of rice. Now to protect against any downside in prices in the future farmer can simply buy forward contracts wherein he enter into the agreement to sell at a fixed price of say $2000/ton at some future date when he would be selling his produce after the harvest. Now farmer before actually selling the produce has sold them for the above price of $2000/ton. Now suppose the harvesting season has gone and the produce is ready to sale then farmer would receive 2000*20=$40000 from the contract. If the price of the rice at the time of produce is 1900$/ton then the farmer has effectively prevented the loss of (2000-1900)*20=2000$ from happening because had farmer not sold the produce beforehand at the forward price he would have to sell the produce for 1900$/ton but now he is able to sell the produce at 2000$ so a net gain of 2000$. on the other hand if the If the price of the rice at the time of produce is 2100$/ton then the farmer has effectively lost the gain of (2100-2000)*20=2000$ from happening because had farmer not sold the produce beforehand at the forward price he would have to sell the produce for 2100$/ton but now he is able to sell the produce at only 2000$ so a net loss of 2000$. Farmer in the contract has effectively protected himself against the downside risk this protection of offsetting losses is hedging or protection against losses by covering against losses.The same concept applies in hedging of forex currencies, commodities or any other investment. I hope you understood.
thanks
A farmer has a produce of 20 tons of rice. Now to protect against any downside in prices in the future farmer can simply buy forward contracts wherein he enter into the agreement to sell at a fixed price of say $2000/ton at some future date when he would be selling his produce after the harvest. Now farmer before actually selling the produce has sold them for the above price of $2000/ton. Now suppose the harvesting season has gone and the produce is ready to sale then farmer would receive 2000*20=$40000 from the contract. If the price of the rice at the time of produce is 1900$/ton then the farmer has effectively prevented the loss of (2000-1900)*20=2000$ from happening because had farmer not sold the produce beforehand at the forward price he would have to sell the produce for 1900$/ton but now he is able to sell the produce at 2000$ so a net gain of 2000$. on the other hand if the If the price of the rice at the time of produce is 2100$/ton then the farmer has effectively lost the gain of (2100-2000)*20=2000$ from happening because had farmer not sold the produce beforehand at the forward price he would have to sell the produce for 2100$/ton but now he is able to sell the produce at only 2000$ so a net loss of 2000$. Farmer in the contract has effectively protected himself against the downside risk this protection of offsetting losses is hedging or protection against losses by covering against losses.The same concept applies in hedging of forex currencies, commodities or any other investment. I hope you understood.
thanks
ShaktiRathore many thks for the answer
yes, this I understand.
My question is: I Finished my master in Math/Statistic now and I want to learn more about hedging (commodities and forex) because in the future I want work in Energy Trading or work in a big company to make hedging in Forex (export companies)
Where Can I learn more about this?
best regards and Happy 2013
yes, this I understand.
My question is: I Finished my master in Math/Statistic now and I want to learn more about hedging (commodities and forex) because in the future I want work in Energy Trading or work in a big company to make hedging in Forex (export companies)
Where Can I learn more about this?
best regards and Happy 2013
Hi Rikardu,
I would recommend you the following books: (i think the list should not intimidate you just go with 1 or 2 books which you feel is best)
1. http://www.amazon.com/The-business-Hedging-John-Stephens/dp/0273652036
2. Hedging Currency Exposures : Currency Risk Management
by Brian Coyle, Alastair Graham
3. Arbitrage, Hedging, And Speculation: The Foreign Exchange Market. by Dilip K. Ghosh, Ephraim Clark
4. Forecasting And Hedging In The Foreign Exchange Markets (Lecture Notes In Economics And Mathematical Systems) by Christian Ullrich
5. http://www.amazon.com/Commodity-Options-Volatility-World-92s Lucrative/dp/0137142862
thanks
I would recommend you the following books: (i think the list should not intimidate you just go with 1 or 2 books which you feel is best)
1. http://www.amazon.com/The-business-Hedging-John-Stephens/dp/0273652036
2. Hedging Currency Exposures : Currency Risk Management
by Brian Coyle, Alastair Graham
3. Arbitrage, Hedging, And Speculation: The Foreign Exchange Market. by Dilip K. Ghosh, Ephraim Clark
4. Forecasting And Hedging In The Foreign Exchange Markets (Lecture Notes In Economics And Mathematical Systems) by Christian Ullrich
5. http://www.amazon.com/Commodity-Options-Volatility-World-92s Lucrative/dp/0137142862
thanks
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