Question:
Commodity exchange enables producers and consumers to hedge which one of the following, given the uncertainty of the future?
Commodity exchange enables producers and consumers to hedge which one of the following, given the uncertainty of the future?
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Futures and options contracts on commodity exchanges are primarily used for hedging price risk.
Updated On: Sep 15, 2026
- Price risk
- Seasonal risk
- Weather risk
- Production risk
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The Correct Option is A
Solution and Explanation
Step 1: Understanding the Concept:
Commodity derivative exchanges (such as NCDEX and MCX) provide standardized financial risk management instruments.
Step 2: Detailed Explanation:
Hedging through futures and options contracts on a commodity exchange allows agricultural producers, processors, and traders to lock in future buying or selling prices, thereby transferring and neutralizing adverse price volatility (price risk) arising from market supply-demand fluctuations.
Step 3: Final Answer:
Therefore, commodity exchanges enable market participants to hedge price risk.
Commodity derivative exchanges (such as NCDEX and MCX) provide standardized financial risk management instruments.
Step 2: Detailed Explanation:
Hedging through futures and options contracts on a commodity exchange allows agricultural producers, processors, and traders to lock in future buying or selling prices, thereby transferring and neutralizing adverse price volatility (price risk) arising from market supply-demand fluctuations.
Step 3: Final Answer:
Therefore, commodity exchanges enable market participants to hedge price risk.
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