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A cotton farmer would like to hedge their cotton price exposure with derivatives. The farmer is not sure whether to use futures or forward contracts

A cotton farmer would like to hedge their cotton price exposure with derivatives. The farmer is not sure whether to use futures or forward contracts and is asking you for advice. 


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List two advantages and two disadvantages of a hedging strategy using futures contracts as compared to hedging with forward contracts.

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Advantages of Hedging with Futures Contracts 1 Standardization Futures contracts are standardized agreements traded on organized exchanges This standardization brings liquidity to the market making it ... blur-text-image

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