Hedging through Futures / Forward contracts With the business environment getting increasing complex, profitability often depends on factors that are beyond the control of an organisation like commodity prices, stock prices, interest rates, exchanges rates, etc. As a result, modern business has been subjected to more complexity, uncertainty and risk. Futures markets often permit managers to reduce or control risks through hedging strategies. In other words, futures markets can provide the managers certain tools to reduce and control their risks. Simply put Hedging means reducing risk. It is the process of investment into securities (usually a derivative) with the objective of reducing or controlling risk. Examples of Hedging: E.g. 1. Firm A is a manufacturer of automobile cars in India and they import auto parts from USA. Firm views that parts may increase in future and thereby increase the cost of cars and this may significantly affect the profitability of the fir
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