Learn about and see examples for futures and forward agreements.
- Would you have been a fortuneteller…in a pre-industrialized society?…If not, and if you don't have a working crystal ball,…then you might want to lock in your future commodity…price risks using commodity futures contracts…or forward agreements.…Locking in commodity prices in the future…allows for future financial transactions…that reduce risk.…There are two kinds of agreement you can use.…Futures contracts, which are on an exchange…and standardized.…And forward agreements, which are off-exchange…and customized.…
Commodity futures contracts and forward agreements…do not require cash outlays upfront.…These contracts allow for terms to buy or sell…a commodity at some time in the future,…and are often used for hedging purposes to manage risks.…This applies to energy, agricultural,…and metals commodities.…Futures are financial contracts…with standardized set terms for a commodity…that obligates a buyer to purchase the asset,…or the seller to sell that asset.…
Futures exist for physical commodities…and financial instruments.…
Jason Schenker of Prestige Economics discusses nine types of corporate risk, including financial and nonfinancial risks. He explains the difference between direct risks that companies face constantly, as well as indirect risks that usually come from vendors, competitors, and counterparties. Then he covers how risks are typically resolved, either by elimination (divestiture or acquisition), transfer (hedging or insuring), offset (creating a natural hedge), or ownership (keeping the exposure). Finally, he reviews how corporations can actively measure and monitor risk by appointing dedicated risk managers, officers, and committees.
- Understanding risk in corporations
- Risk management process
- Nine different types of corporate risks
- Financial market risks
- Direct and indirect risks
- Risk management solutions
- How corporations actively manage risk