Introduction:
The volatile financial market today has taken financial risk as centre point in every sphere of economic
activity. Therefore, hedging of risk has become a very important concern worldwide. However, hedging is
still an underutilized tool. International practices for hedging against commodity price risk involve both
static and dynamic hedging techniques. In a static hedge, the physical commodity price is locked in by
hedging in Futures market. This is irrespective of whether the commodity price increases or decreases, the
underlying objective being protection against market risk. In a dynamic hedge, judgmental positions are
taken in Futures markets, based on specific presumptions on possible price movements in the physical
market. This may depend on fundamental factors of demand and supply that impact commodity prices.
Dynamic hedge involves greater risk as compared with a static hedge.