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Oil refineries, aluminum smelters, steel mills, farms, mines, car manufacturers, chip makers, the list is endless. Often such businesses will use financial ins
by jmyeet 3y ago
Oil refineries, aluminum smelters, steel mills, farms, mines, car manufacturers, chip makers, the list is endless.
Often such businesses will use financial instruments to remove risks (and potential rewards) from market fluctuations eg commodity futures, exchange rate swaps, etc.
This reminded me of another example of accidental speculation. An airline used rolling 6 month commercial loans because it was cheaper than long term bonds by a few basis points. This was fine until it wasn’t. Interest rates spiked and the airline was suddenly insolvent.
They’d inadvertently become a speculator on interest rates.
- antasvara 3y agoFarms plant seeds, which costs some amount of money. They then wait for a harvest, at which point they hope that the sale price of that harvest covers their expenses. How is that not speculation on the price of a given crop?
- jmyeet 3y agoPlanting seeds to grow crops is an example of creating value, not speculating. If the crop price remains unchanged, the farmer is fine (generally). Often the risk of price movements over the season are hedged with futures as well. Speculating would be needing the price to go up to turn a profit or not selling your crop in the hopes that the prices increases in the future.