Would MGRM have had the same cash flow problems if it had been able to buy and sell energy derivatives in the forward market (i.e., rather than using the futures market to cover its net forward positions)?
What will be an ideal response?
MGRM would not have had the same liquidity problems if a long-dated forward market in energy contracts had existed. If a forward market existed, MGRM could have hedged its short forward sales with long forward positions of equal maturity. Often, forward contracts are not marked to market, and therefore, they do not cause cash inflows or outflows until maturity. Therefore, MGRM's exposure to market and liquidity risks would have been much lower.
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