Q&A – Standard Chartered Bank’s Afaq Khan
Commodities derivatives are used in the West for speculative trading as well as a hedging method to cover commercial risk. Lianna Brinded looks at sharia-compliant products and their role in energy and commodity risk management
End-users and producers looking to hedge their commercial risks usually use simple forward contracts to lock in the prices of the assets, foreign exchange and shipping rates.
However, the increased financialisation of commodities – the securitisation of commodity-linked instruments for investment rather than as a risk management tool – is said to have dramatically altered price movements, particularly in the oil markets, where commodity derivative contracts are shorted on the secondary markets
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