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  • 4.10.5-COTTON TRADING-THE WORKINGS OF A GUARANTEED MINIMUM PRICE CONTRACT

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  • The workings of a guaranteed minimum price contract

    Chapter 4 - Cotton trading - Guaranteed minimum price contracts 

     
     
    • First of all, the buyer and the seller must come to an agreement for the fixed price of the cotton to be bought and sold (fixed price).
    • The seller must try to quantify the risk that he or she wishes to insure, and what he or she is willing to pay for it (insurance premium).
    • The guaranteed minimum price contract is the fixed price less the insurance premium.