Hedging with commodity futures contracts
A) increases price fluctuations
B) reduces the risk of loss from price fluctuations
C) increases the potential return
D) does not require margin delivery

Question

Hedging with commodity futures contracts​
A) ​increases price fluctuations
B) ​reduces the risk of loss from price fluctuations
C) ​increases the potential return
D) ​does not require margin delivery

Quizplus · Accepted Answer

Hedging with commodity futures contracts reduces the risk of loss from price fluctuations. This is because by taking offsetting positions in the futures market, a party can protect themselves against adverse price movements in the underlying commodity. The goal of hedging is not to increase potential returns or price fluctuations, and margin delivery may still be required for futures contracts.

Hedging with Commodity Futures Contracts​

Hedging with Commodity Futures Contracts