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Hedge
Ratio
A ratio
that seeks toward minimizing basis risk. The ratio is one that represents
a comparison between the value of futures contracts bought or sold to
a cash commodity hedged.
There are main hedging
reasons at the forefront depending on the hedgers intentions. Such
as whether they are a farmer, for example, or a corporation seeking
to control financial aspects of their operations.
Hedging in futures commodities
normally involves those that have an interest in the commodity
itself. In many cases, it can be an effective tool
for minimizing risk.
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