Yu, Cao. 2010. An
Application Of Risk Contingent Credit Applied To New York Dairy Farms With U.S.
Options On Class Iii Milk Futures. Doctoral Dissertation, Cornell
University.
The present day realities
facing New York dairy farmers and all dairy farmers is an example of when
business risk become so severe that the residual impact on financial risk
become acute. While financial risk is ever present, stress results only when
conditions arise in which downside risk result in a return on assets
insufficient to meet fixed financial obligations. Thus, it is proposed in this
paper the use of commodity linked credit to balance financial and business
risks faced by New York dairy farmers. In this paper, commodity linked credit
refers to a suite of financial products in the form of operating loan and
mortgage with payoff schedules tied to the price of class III milk futures
price. To apply commodity linked credit, a represent farm financial statement
is established and modified. Monte Carlo simulation is then used to analysis
the effect of commodity linked credit. By comparing return on assets (ROA),
return on equity (ROE) and other financial parameters before and after
implementing commodity linked operating loan and mortgage, conclusion is
reached that commodity linked credit is a proven method to hedge business risk
and financial risk.
No comments:
Post a Comment