Comment on the nature of hedge funds and the role they play in the modern financial...

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Finance

Comment on the nature of hedge funds and the role they play inthe modern financial sector. You may illustrate with, or focus on,the story of Long Term Capital Management (LTCM).

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Hedge is defined as the process of offsetting the financial losses against the financial gains derived from the financial instrument portfolio hedge includes financial instruments of type stock insurance and forward contracts Lets take a famous example of hedging in pricing agriculture commodity we all know the financial environment is full of risk facing due to the movements in prices because of change in demand and supply of commodities a farmer takes a long position of taking risk when he commits to produce a particular commodity such as rice and wheat due to unavailability of perfect information about which product will yield better benefits farmer uses forecasting technique to assess the conditions and potential sales level of the commodityThen undertakes the risk by making decision which product to produceIn that case if the estimated price and sales level happens to be somehow same then the farmer will get large amount of return but in case the prices of commodities changes over the time drastically such that prices might fall below the See Answer

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