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Hedging and Forecasting in Global Value Chains

1) What are some hedging strategies in global value chain management? What is the difference between any two of the common strategies available for global value chain management? What criteria might an organization use to select the most appropriate hedging strategy?

2) What are the major forecasting techniques used in global value chain management? What is the difference between forecasting and estimating? What effect might forecasting have on the effectiveness of global value chain management?

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HEDGING STRATEGIES IN GLOBAL VALUE CHAIN MANAGEMENT

Hedging is a strategy utilized by companies in order to reduce the risk of loss that may be encountered due to fluctuation in prices. Because of uncertainties in future trends of prices of certain outputs produced by companies, the chance that losses may be incurred would be high. Hence, in order for the company to handle the situation and end up earning profits amidst fluctuation in prices, they resort to hedging.

To hedge away the risk of adverse of effects of price rises, companies use futures contracts which are agreements to buy or sell a particular commodity or instrument at a pre-determined price in the future.

COMMON STRATEGIES AVAILABLE FOR GLOBAL VALUE CHAIN MANAGEMENT AND THE CRITERIA IN SELECTING THE MOST APPROPRIATE HEDGING STRATEGY

There are several forms of futures contracts that may be used to hedge away or reduce the risk of incurring losses due to price fluctuations. However, before deciding on which form will be selected, there are two methods of analysis with the corresponding criteria that may be utilized: (a) the technical approach that uses the same criteria as those utilized in selecting securities such as patterns in current price movements and various averages that may be further interpreted through bar graphs and other forms of charts and (b) the fundamental approach that is primarily concerned with the factors that may affect the interplay ...

Solution Summary

The solution discusses hedging and forecasting in global value chains.

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