Advantages And Disadvantages Of The Commodity Swap Contracts

The National Motor Freight Classification (NMFC), as determined by the Surface Transportation Board (STB), is the tariff system that has classification and description of commodities based on four main characteristics. These are density of the commodity, liability, handling and storability of the commodity. Carrier companies negotiate the rate and terms of transporting the commodities on the basis of these four characteristics. It is important to mention that product density is the dominant factor that determines use of carrier’s vehicle and cost per hundredweight. Higher product density results in lower cost per hundredweight but higher capability of

Commodities account for 57% of the value of total exports, so that a downturn in world commodity prices can have a big impact on the economy. The government is pushing for increased exports

The derivatives program was reducing risk when the firm was investing in foreign currency futures for the first four months from the implementation date (February 1991 to May 1991). This is seen by the negative correlation of (0.94226594) between the derivative (futures) cash flow and the unhedged cash flow. A purpose of a perfect hedge is to obtain a net of zero or in other words, reduce your risk to nothing not including the cost of the hedge. If a correlation is negative, as it was for the first three

Based on the 1988 Supreme Court case of Corn Product Refining Co. v. Commissioner (350 U.S. 46; 76 S.Ct. 20; 100 L.Ed. 29), hedging transactions were determined to be used to support business practices of certain commodities. Such hedging transactions are normal for businesses engaged in commodity sales such as coal or corn to protect against market

As a consultant for Thomas Foods and it is my job to develop hedging strategy to mitigate the risks associated with any unexpected increase in price they would have to pay farmers for their harvested crops. It is important to note that risk is an unavoidable fact of business life. Also, the strategies developed to mitigate risk can often determine the success or failure of a business. There are several mechanisms that are used for such transactions that can involve futures contracts, short sells and rate swaps, among other more exotic positions. There is specific set of guidelines that needed to be set as a consultant. My first initial thought will be the risk to be hedged; that is interest rate and commodity price

According to a purchase agreement, a cost from SFM will be transferred to Can-do. Thus, this report classifies a cost into two groups, which Can-do willing to incur and which not. Furthermore, it states several risks in accordance with our assumptions that are likely to occur during the 20-year period.

To mitigate the risk of future commodity price changes it is recommended that Desert Valley adopt a hedging program by purchasing forward contracts. This would allow the company to

A large portion of the market participants pay the distribution network companies to transmit electricity and gas to ending retail customers. Origin acts as not only an energy producer but a trader that offer power directly in the electricity market. To offset potential variation in supply costs, market players often use hedging activities to manage the relevant risks. The hedging activities can easily effect on the assumptions in many valuation of accounts in the financial statement, thus auditors should take adequate concern on these activities.

BHP Billiton is the world’s top producers of major commodities. China, as BHP Billiton’s largest export market, demand strongly influences the BHP Billiton’s operation (Western Australian Iron Ore Industry Profile 2015). According to the annual report of BHP Billiton (2015), China brought about 36.6% revenue in the amount of total export revenue for BHP Billiton, among the largest product is Iron Ore, which was 66% in 2015. Meanwhile, the forecast of iron ore will continue to increase production. However, Chinese steel consumption may growth slow next few years (shows in figure 1) because the real estate industry decline (Mark 2015). Therefore, oversupply and weaker demand may create the fluctuations in commodity prices which related to commodity risk.

* Hedging. Hedging with the fuel market could save enough money in one year to offset the next year’s fuel supply and costs.

The best futures contract for hedging a cash market risk exposure is one whose price sensitivity to interest rate changes is as close as possible to the sensitivity of the cash market risk exposure to interest rate changes. The higher the correlation between the interest rate on the futures contract and the interest rate in the spot market, the higher the immunization achieved against the losses / gains from the interest rate risk. Thus, the best futures

commodity costs for commodities that can only be partially hedged, such as fluid milk, and high quality Arabica coffee;

(real time) supply and demand. This includes power traded under forward contract and real time

From its definition it can be noticed that hedging is a strategy employed by companies in an effort to safeguard their economic position and to prevent the company from the losses which are associated with the unforeseen risks. Companies can hedge against risks which are associated with losses by taking control of their future purchases. The commodity prices vary in different markets and are caused or influenced by different economic factors. Some commodities are very scarce and with the increased depletion subject to the global demand in different foreign markets, the prices are set to be hiked in response to the established demand which positions the companies that use those particular commodities to have cash flow problems.

This risk is often hedged by major consumers. Besides, unexpected changes in commodity prices can reduce a producer's profit margin, and make the budget difficulties. Fortunately, producers can through the implementation of financial strategy to protect themselves from fluctuations in commodity prices that will ensure a commodity price or lock in a worst-case-scenario price. Furthermore, futures and options are the most common of financial instruments used to hedge against commodity price