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Application of Forward Contract and Crop Insurance as Risk Management Tools of Agriculture: A Case Study in Bangladesh

Md. Bokhtiar Hasan, Md. Delowar Hossain and Abu N.M. Wahid
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Md. Bokhtiar Hasan: Assistant Professor, Department of Finance and Banking, Islamic University, Bangladesh
Md. Delowar Hossain: Department of Finance and Banking, Islamic University, Bangladesh
Abu N.M. Wahid: Tennessee State University, USA

Asian Economic and Financial Review, 2018, vol. 8, issue 12, 1394-1405

Abstract: The principal aim of the study is to find out a way to effectively manage the agricultural risks like price volatility, weather risks, and fund shortage. To hedge price volatility, farmers sometimes make contracts with agro-traders but fail to protect themselves effectively due to not having the legal framework for such contracts. The study extensively reviews existing literature and find evidence that the majority studies either deal with price volatility or weather risks. If we could address these risks through a single model, it would be more useful to both the farmers and traders. Intrinsically, the authors endeavor in this regard, and the key contribution of this study lies in it. Initially, we conduct a small survey aspiring to identify the shortcomings of existing contracts. Later, we propose a model encompassing forward and insurance contracts together where the forward contract will be used to hedge price volatility and insurance contract will be used to protect weather risks.

Keywords: Agriculture; Forward contract; Insurance contract; Risk management; Model. (search for similar items in EconPapers)
JEL-codes: O13 Q13 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:asi:aeafrj:2018:p:1394-1405