Jamani wrote:At Tom_boy.....wiki defines it as follows
A hedge is an investment position intended to offset potential losses/gains that may be incurred by a companion investment. In simple language, a hedge is used to reduce any substantial losses/gains suffered by an individual or an organization.
Hedging fuel consumption
Main article: Fuel hedging
Airlines use futures contracts and derivatives to hedge their exposure to the price of jet fuel. They know that they must purchase jet fuel for as long as they want to stay in business, and fuel prices are notoriously volatile. By using crude oil futures contracts to hedge their fuel requirements (and engaging in similar but more complex derivatives transactions), Southwest Airlines was able to save a large amount of money when buying fuel as compared to rival airlines when fuel prices in the U.S. rose dramatically after the 2003 Iraq war and Hurricane Katrina.
Thanks @Jamani for trying to explain this to me. However, I am still lost. I am not able to wrap my mind around big words like "futures" and "derivatives". Please explain using a simple mama mboga example. As in, start by, " Mama Mboga knows she needs to buy sukumawiki every day. The price of sukumawiki in Marikiti keeps changing. She therefore enters into a hedge contract with Mwaniki................... (please explain how it would work in such a situation)
They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.