Hedging ? What Is It, And It?s Uses In Risk Management
Hedging,
understanding the benefits for a risk management solution.
The second of a two part article?.
Before I discuss
the use of hedging to off-set risk, we need to understand the role and the
purpose of hedging. The history of
modern futures trading begins in Chicago in the early 1800’s. Chicago is
located at the base of the Great Lakes, close to the farmlands and cattle country
of the U.S. Midwest making it a natural center for transportation, distribution
and trading of agricultural produce. Gluts and shortages of these products
caused chaotic fluctuations in price. This led to the development of a market
enabling grain merchants, processors, and agriculture companies to trade in
contracts to insulate them from the risk of adverse price change and enable
them to hedge.
