Abstract
This paper utilises portfolio theory to examine the usefulness of futures markets to commodity-exporting nations. The theory of optimal hedging is extended to multi-product exporters and applied to a sample of cocoa, coffee and sugar exporting nations which face both price and quantity risks. It is found that the optimal hedging-strategy differs considerably across nations, although they should all sell futures contracts totalling much less than expected exports and in many cases they should even buy futures. It appears that futures markets may offer some (but not all) countries an attractive means of reducing year-to-year fluctuations in export-revenues.
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