Simulation | CPA 2023. 8. 23.

오후 10:05

For many years now, our company has used long forward contracts to lock in prices for the
purchases of raw materials. Given that we are looking to extend this practice to hedge
additional purchases, there are several factors that need to be taken into account before
making a !nal decision.

Regardless of whether prices increase or decrease, using forward contracts does allow us to
hedge against volatility by locking in a purchase price several months in advance of the actual
purchase. In taking long positions, we have bene!ted by securing lower prices in a rising price
environment. As long as prices continue to rise, this strategy will remain successful. In
addition, the customized nature of forward contracts (as opposed to the standardized nature
of futures contracts) has always allowed us to set notional amounts and settlement dates that
work best for us and our counterparties. However, there are risks that we need to be aware
of if we continue to use (and expand on) this strategy. 
 
If prices decline, we will have locked in a higher purchase price for our raw materials. The
market risk associated with this strategy re#ects our potential loss from a situation such as
falling prices. Another relevant risk is credit risk, which relates to our counterparty not
ful!lling their end of the contract; this scenario is most likely to occur when their position
moves against them (which would happen if prices rise). In an unregulated market such as
the forward market, there is no mechanism that automatically prevents credit risk. Terms and
conditions may be established in the contract to protect both parties, but forward contracts
are generally settled only at settlement date without a daily mark-to-market feature (found in
futures contracts) that would automatically help to o$set this risk. 
 
I am available to discuss all of the factors I have outlined above at your earliest convenience.

https://cpa.becker.com/module/B-01-06/V4.1/sim/session 1페이지/1페이지