A hedger trying to reduce “inventory” risk can do so by shorting a futures contract. Which...
A hedger trying to reduce “inventory” risk can do so by shorting a futures contract. Which of the following is not a valid reason as to why he did not eliminate this inventory risk by simply selling the commodity in the spot market instead of hedging?
- He does not have the commodity in his possession
- He has liquidity problems in the cash market
- All of the above are valid reasons
Please explain why the answer (is)/(is not) 2.
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A hedger trying to reduce “inventory” risk can do so by shorting
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