Analyzing The Production Cycle Of A Salmon Farming Company

1485 Words Nov 11th, 2014 6 Pages
Introduction
Financial market instruments are essential for hedging the occurring risks of business corporations. There is a large market for financial instruments, such as the derivatives that are used to hedge commodities, currencies, equities and interest rates. World-exchanges (2014) reports about a total amount of 22 Billion of Exchange Traded Derivatives contracts being in the market in 2013. This essay attempts to determine the present risks by analysing the production cycle of a salmon farming company, Loch Duart and to provide the possibilities to hedge these risk using derivatives.
Company’s background
Loch Duart is a salmon rearing company located in Sutherland, Scotland. (Loch Duart, 2014) This company was established in 1999 and has acquired Scotland’s oldest salmon farming sites the same year. (Loch Duart, 2014) Loch Duart employs 60 local people around the Eddrachillies Bay. (Loch Duart, 2014) Around 5,000 tonnes of salmon are produced yearly accounting for approximately 3% of the total Scottish annual salmon production. (Loch Duart, 2014) Salmon is distributed throughout the UK and to overseas countries such as France, Germany, Ireland, Italy, Japan, Lebanon, South Africa, Switzerland, UAE, USA and Zimbabwe. (Loch Duart, 2014) Besides salmon Loch Duart sells salmon viscera to CellsUnited, signing an agreement to supply up to 540 tonnes of salmon viscera and heads. (Loch Duart, 2014) The feed for the salmon is delivered from EWOS, a Scottish company. (Loch…
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