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Rainfall Future Contracts

In: Business and Management

Submitted By anncas7
Words 1156
Pages 5
Rainfall Future Contracts
Throughout the year, there are different seasons that could have several impacts on many industries. To be precise, the elements of weather can actually impact a company and how well they do during the different seasons of the year. Rainfall is a part of our life in some areas, almost daily, and others randomly, affecting every business in some sort of way. Although we can’t predict or control the weather, there is a way companies can hedge any losses that weather could potentially contribute to. Using a Rainfall Future Contract does this. These help companies manage risk and access profit opportunity. Chicago Mercantile Exchange happens to be the largest trader of commodities and futures in the world. They are the world’s leading and most diverse derivatives marketplace. Rainfall futures have been growing substantially ever since they have become available. These contracts are now offered in ten locations. The futures and options on futures contracts enable market participants to manage exposure to rainfall. The demand for insurance on these potential risks were seen by a former wealth management advisor from Merrill Lynch, Jeff Hodgson, who quit that job and discovered an entire industry facing weather risk, launching the Chicago Weather Brokerage. Insurance and Rainfall futures work a lot like each other in which there is a possibility you get paid for paying a piece of the total gain you could receive. The difference between actual insurance and rainfall futures is the fact that the investor doesn’t actually have to prove a loss to collect on the security. Rainfall futures are traded only from the months of March through October. The process of purchasing a rainfall future would be settled prior to the day. A predetermined amount is paid for by the party looking to hedge their risk. The contract outlines a certain amount of

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