How can hedging help with protecting an oil producing company’s income?
Homework Answers
Hedging provides certainty of future cash flows.The companies forgo the benefits of price rise but they are also protected against any dramatic price decline.This helps companies to undertake huge future capital expenditure because they are protected against losses and thus,their income is secured.
Hedging also ensures that dividends are paid to investors at difficult economic downturn and helps the company stay afloat.
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