How Can an Energy Producer Hedge Its Risks

question 20

Multiple Choice

How can an energy producer hedge its risks?

• A) Use weather derivatives for price risk and energy derivatives for volume risk
• B) Use energy derivatives for price and volume risk
• C) Use energy derivatives for price risk and weather derivatives for volume risk
• D) Use weather derivatives for price and volume risk

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Definitions:

Socialize Losses

A policy or practice where financial losses are distributed across the broader society, typically through government intervention, instead of being borne solely by those who incurred the losses.

Privatize Gains

The concept where profits are allocated to private individuals or corporations rather than being shared with the public or society at large.

Mohair Production

The process of harvesting and processing the fiber produced by Angora goats, used in textiles.

Special-Interest Effects

The impact that a small, focused group can have on policy-making to secure benefits for itself, often at the expense of the larger public interest.