What if instead you observed that a company had entered into futures contracts to sell less than the volume they expect to produce, say they have locked in a price for only 50% of anticipated production? How might this be justified?
This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.Futures contracts are used to hedge the risk that the prices of the commodity can move in the adverse direction. They are also used when traders speculate that markets are bullish or bearish. Moreover, the magnitude in which the futures price and the spot price move may also not be the same. This is because of the presence of market irregularities. Prior to expiry of the futures contract, there is the possibility that if the spot price changes by 10%, the futures price may change by less than 10% or more than 10%. ...