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Abstract

THere is a lively debate amongst several economists about the nature of hedging in commodity futures market. In this paper, we examine this debate not with a view to sharpen the area of disagreement amongst the ribal economists but to exhibit that their differences are rather superficial than real, and underlying their diverse concepts and views, there is a consensus, though unacknowledged, on a single, uniform concept of hedging. Later in the paper, we examine the nature of risks and returns involved in hedging practices in order to ascertain the theoretical efficiency of futures maket for the purposes of hedging. The analysis also discloses the principal economic determinants of hedging decisions, the character of hedging in futures markets and their efficiency.

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