As We Saw in the Chapter, Some Financial Instruments Are

question 118

Essay

As we saw in the chapter, some financial instruments are used primarily to transfer risk. Explain how a bread maker can use a financial instrument to transfer the following risk: the bread maker has the opportunity to provide bread to a local army base. The base figures they will need 10,000 loaves of bread each week, or roughly 500,000 for a year. The problem is the baker must quote a price for the entire year. The baker would really like to have this contract but he realizes that fluctuating input prices (specifically wheat) could result in significant losses.

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Definitions:

Big Data

Copious amounts of information that are often collected in real time and can come from a wide variety of sources, particularly digital.

Benchmarking

The process of comparing one's business processes and performance metrics to industry bests or best practices from other companies.

Gold Standard

historically refers to a monetary system where a country's currency value is directly linked to gold, but in a broader sense, it signifies the highest quality or benchmark measure.

Crowdsourcing

The method of acquiring ideas, services, or content by requesting contributions from a broad group of individuals, particularly from an online community.