You are a buyer for a manufacturer of chocolates and candies and have been told to hedge the cocoa and sugar needed for

Question

You are a buyer for a manufacturer of chocolates and candies and have been told to hedge the cocoa and sugar needed for production of your upcoming orders.
What is true below AND suggests you might prefer to hedge your needs using ONLY FUTURES contracts (i.e. exchange-traded, standardized) rather than using FORWARD contracts (i.e. directly with known suppliers)?
FUTURES contracts may be customized to the buyer's and seller's specific terms
FORWARD contracts can be easily offset if you don't want to take delivery at the time of expiration
FUTURES contracts expose you to higher contra-party (counterparty) risk
FUTURES contracts are less liquid and have a limited resale market
FUTURES contracts have margin requirements and are marked to market daily to ensure parties perform financially

Kunduz · Accepted Answer

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