Who is a hedger in a derivatives market?

Answer 1

Corporations, investors, banks and governments all use derivative products to hedge or reduce their exposure to market variables like interest rates, share prices, bond prices, currency exchange rates, commodity prices etc (We have covered almost all categories of assets over which derivatives can be placed, haven't we??)

A simple and classic example would be a farmer who sells a futures contract to lock into a price for the crop he will deliver in a future date. The buyer might be a food processing company that wishes to fix the price for taking delivery of the crop in the future or a "Speculator"

Another typical case is that of a company due to receive a payment in a foreign currency on a future date. It enters into a forward contract to sell the foreign currency to a bank and receive a predetermined quantity of domestic currency. Or, it purchases an option which gives it the right but not the obligation to sell the foreign currency at a set rate