Construct a position/s that fulfil the stated requirements in the following scenario. You can use any types or numbers of financial assets and instruments you like. Do not make calculations but feel free to assign symbols, numbers or use graphs if it helps you illustrate your answer. There may be more than one way to hedge a position, but describing one way is enough.

An EU company that produces livestock feed imports soya beans from abroad, processes them in their facilities (factory, silos and harbor) and sells the feed in the EU. The beans are ordered by the producer at an agreed USD price, transported by ship, paid upon cargo delivery, stored and used into production at a later date. The company orders quantities according to prearranged deals with clients (no purchases for future undefined use), does not want to use cash reserves for cargo payments and is paid upon product(livestock) delivery. The company is considered to have ownership of the soya beans upon purchase, i.e. at placing the order and agreeing the price (ignore the captain's liabilities during travel). Identify the risks the company faces, hedge them and describe the transactions and assets involved.

Answer rating: 100% (QA)

Hedging Risks for Soy Bean Importer Risks Foreign Exchange Risk Fluctuations in USDEUR exchange rate ... View the full answer