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Explain how forwards or futures can be used to manage risk. Provide an example of a...

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Finance

Explain how forwards or futures can be used to manage risk.Provide an example of a hedge that uses a short futuresposition.   Why might you chose to use a put option as ahedge instead of a short futures position?

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Forwards or Futures contracts are one of the most common derivatives used to manage risk A futures or forward contract is an arrangement between two parties to buy or sell an asset at a particular time in the future for a particular price The difference between forward and futures contract is forward contracts are traded Over the Counter and futures contracts are traded on a recognized Exchange like New York Stock Exchange NYSE The main reason for why companies use Futures contracts is to limit their risk exposure or to limit the fluctuations in price For    See Answer
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