As We Saw in the Chapter, Some Financial Instruments Are

question 68

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:

U.S. Constitution

The supreme law of the United States of America, outlining the national framework of government and the fundamental rights of citizens.

Preamble

An introductory statement in a document that explains the document's purpose and underlying philosophy.

First Amendment

A provision of the United States Constitution that protects freedoms concerning religion, expression, assembly, and the right to petition.

Multi-State Drug Ring

An illicit network involved in the distribution and sale of drugs that operates across multiple states.