Hedging commodities-swaps-forwards and futures

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Hedging Commodities

If a textile manufacturer wanted to hedge against adverse movements in cotton prices, it could buy cotton futures contracts or buy call options on cotton futures contracts. What would be the pros and cons of the two approaches?

Swaps

Explain why a swap is effectively a series of forward contracts.  Suppose a firm enters a swap agreement with a sap dealer.  Describe the nature of the default risk faced by both parties.

Forwards and Futures

What is the difference between a forward contract and a futures contract.  Why do you think that futures contracts are much more common? Are there any circumstances under which you might prefer to use forwards instead of futures?

Reference no: EM132444179

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