What do you mean by ‘Weather Derivatives’? What is the utility of these derivates? Briefly explain the different products of these derivatives and comment on the international markets for them.

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Weather Derivatives: Unraveling the Elements of Risk Management

Weather derivatives are financial instruments that allow businesses and individuals to hedge against the impact of weather-related events on their operations. These derivatives are a subset of a broader category known as environmental derivatives, which also includes products linked to natural events like earthquakes and floods. Unlike traditional financial derivatives, such as options and futures tied to stocks or interest rates, weather derivatives derive their value from weather variables.

Utility of Weather Derivatives:

The primary utility of weather derivatives lies in risk management. Businesses and industries heavily dependent on weather conditions, such as agriculture, energy, construction, and tourism, face significant financial risks due to the unpredictable nature of weather. Weather derivatives provide a tool for these entities to mitigate the impact of adverse weather conditions on their bottom line.

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Degree : MASTER DEGREE PROGRAMMES
Course Name : Post Graduate Diploma in Financial Markets Practice
Course Code : PGDFMP
Subject Name : Commodity Markets
Subject Code : MFP 3
Year : 2022