If your firm buys a Futures Contract, it is likely that they would be fully hedged? Please explain in your own words.

A futures contract is a financial derivative that obligates the buyer to purchase an asset, or the seller to sell an asset, at a predetermined future date and price. It is used to hedge against the risk of price fluctuations.

If a firm buys a futures contract, it means they are locking in a price now for an asset they will purchase in the future. This can provide a level of protection against price increases. However, it does not necessarily mean they would be fully hedged.

Being fully hedged implies that the firm has completely eliminated their exposure to a particular risk. In the context of futures contracts, this would mean that the firm has contracts covering the entirety of their exposure to the risk of price fluctuations in a particular asset.

However, futures contracts come with their own risks. For example, the other party in the contract could default, or the price of the asset could move in a direction that is unfavorable to the firm. Therefore, while buying a futures contract can help to hedge against certain risks, it does not guarantee that the firm will be fully hedged.

In conclusion, buying a futures contract can provide a level of hedging, but it does not necessarily mean that a firm would be fully hedged. The firm would need to carefully manage their futures contracts and other risk management strategies to achieve a fully hedged position.