a very close friend of mine went to visit her parents this weekend. her dad is c.f.o. for a public transportation sector company. like most (all?) such companies, her dad's company has been taking it on the chin with oil prices. but when she asked him why his company doesn't hedge against rising oil prices with oil futures, he said "we're not in the business of speculation."
Huh? Am I missing something here? Does anyone know of a plausible reason why a company vulnerable to rising commodity prices would NOT hedge that risk with futures contracts?
well i can only speculate of course on the reasons, one might be
they've previously been burned trying to hedge via a futures
broker salesman proposing what you're suggesting
they might think hedging requires a trading department or at
least having to employ one possibly expensive person to manage
it's the cfo that should be the one to examining hedging not the
president but in very small companies/businesses i think 'they'
have no knowledge whatever of hedging tho accutely aware of
what's affecting their bottom line, hedging may be taught in mbm
programs but it's likely the average business person has a similar
reaction as your example thinking of hedging in terms of speculate
when the C$ was at its low some companies moved to the States
tho the commodity producers were of course laughing all the way
to the bank
it's an interesting topic from the pov of trading since if one thinks
of the consequences of higher/lower prices many more trading
an awareness needed by individuals when trading international
markets - currency hedging as well many of the smallest business
such as a 'tourist shop' when the US tourists stop visiting Canada
and vv - many US retailers on the border closed when the C$ fell