Question

In: Finance

Examine the concept of weather derivatives and examine how they are designed to operate. Make a...

Examine the concept of weather derivatives and examine how they are designed to operate. Make a case for the introduction of weather derivative in Ghana.

Solutions

Expert Solution

CONCEPT OF WEATHER DERIVATIVES ---->>>

  • Weather derivatives are financial instruments that can be used as part of a risk management strategy to reduce risk associated with unexpected & adverse weather conditions.
  • Weather derivatives derive their value from various climatic conditions like rainfall, temperature, snowfall or hurricanes.
  • Weather derivatives are index-based instruments that usually use observed weather data at a weather station to create an index on which a payout can be based. Example - This index could be the number where the minimum temperature falls below zero which might be relevant for a farmer protecting against frost damage.

Case for the introduction of weather derivative in Ghana ---->>>

  • In Ghana, agriculture represents 36 % of the country’s GDP and is the main source of income for 60 % population.
  • Agricultural production depends a lot on weather parameters like rainfall and temperature
  • If weather derivatives are introduced in Ghana, Ghanian farmers will be able to use weather derivatives to hedge against poor harvests caused by failing rains during the growing period, excessive rain during harvesting, high winds in case of plantations.
  • Their overall loss in agriculture(if it happens) will be minimised to a great extent in exchange of a relatively smaller premium.
  • Farmers shift their agricultural loss to seller of weather derivative. Hence, weather derivatives will be of huge benefit to Ghanian farmers so should be introduced.

Related Solutions

Examine the concept of revenue management, its component parts and the characteristics of businesses that make...
Examine the concept of revenue management, its component parts and the characteristics of businesses that make them suitable to the application of revenue management techniques. Quote examples from the hospitality, wellness, and / or other tourism business. Reference a minimum of four readings. Word count 1,000 words approximately focus on hotel industry
Explain why derivatives are, as Partnoy says, "a horror show." How can we make derivatives less...
Explain why derivatives are, as Partnoy says, "a horror show." How can we make derivatives less dangerous and frightening? Or should they be abolished altogether?
1) Examine and describe the concept of a galaxy. 2) How are the various types of...
1) Examine and describe the concept of a galaxy. 2) How are the various types of galaxies similar and different? 3) Explain what a cosmic redshift is and how this provides evidence for the Big Bang Theory of the Universe?
Examine how the concept of Ethics is treated in the organisation you are working or one...
Examine how the concept of Ethics is treated in the organisation you are working or one to which you are familiar. Discuss and support with examples ethical issues arising in at least three functional areas of the organisation
Describe the concept of Phillips curve and how it can be used to examine the shifts...
Describe the concept of Phillips curve and how it can be used to examine the shifts of the aggregate supply curve in the AD‐AS model.
essay form Explain how the concept of “inferior” goods and “normal” goods operate in a household...
essay form Explain how the concept of “inferior” goods and “normal” goods operate in a household when income increases Briefly explain what is meant by the term “fixed costs” and provide three examples of same. Briefly explain what is meant by the tern “variable cost” and provide three examples of same.
Explain the notion of “unconditional positive regard,” and discuss how this concept might operate in child...
Explain the notion of “unconditional positive regard,” and discuss how this concept might operate in child rearing or in a romantic relationship. What are the critical differences between Skinner’s and Rogers’s views of human nature and the role that psychology can play in human lives? Which position do you find most appealing? Why? Contrast Rogers’s ideas about marriage with more traditional views. Do you see problems or advantages in Rogers’s approach? Explain your position.
What are derivatives? How can derivatives be used to reduce risk? Can derivatives be used to...
What are derivatives? How can derivatives be used to reduce risk? Can derivatives be used to increase risk? Explain
A multi-stage gas turbine is to be designed with impulse stages, and is to operate with...
A multi-stage gas turbine is to be designed with impulse stages, and is to operate with an inlet pressure and temperature of 6 bar and 900 K, and an outlet pressure of 1 bar. The isentropic efficiency of the turbine is likely to be 85 per cent. All the stages are to have a nozzle outlet angle of 15 degrees, equal inlet and outlet blade angles, a mean blade speed of 250 m/s and equal 5 kJ/kg K o inlet...
Derivatives and risk management: OPTIONS PRICING -What is meant by put-call parity? -How does the concept...
Derivatives and risk management: OPTIONS PRICING -What is meant by put-call parity? -How does the concept of a synthetic call (i.e. long call and a long put) set the stage for put-call parity? -How does this result in an equilibrium value for a put option?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT