re: ** loooking, loooking.worrisome... Subject re: loooking,...

re: ** loooking, loooking.worrisome... Subject re: loooking, loooking.worrisome...
Posted 12/12/05 19:12 - 16 reads
Posted by probing
IP 60.230.xxx.xxx
Post #827241 - in reply to msg. 827216 - splitview

Surely a hedge book being "under water" is only a problem if the physical can't be delivered. Beyond that it is really only a discounted sale ie lost profit. As long as the production cost is less than the hedge price they are still making money

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On my understanding not quite correct.

Because the movements in the hedge book have to be brought to account as a profit or a loss, for any company with with traditional bank finance it could seriously affect that company's credit rating leading to a calling in of the debt....

You don't need to be a magician to work out what will then happen.