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The Purpose of Hedging

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The basic premise behind either a short or a long hedge is that as the price of the underlying commodity changes, so too will the price of a futures contract based on that commodity.

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Solution Summary

The purpose of hedging while investing in commodity markets explained.

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My comments would be:

Why does the price of the underlying commodity change? Cover the causes of the price changes such as supply/demand, geo-political issues (wars, embargos), weather (storms, earthquakes), and the technology to discover and produce additional resources. Then you can further ...

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