a. Under what circumstances does risk retention make sense as a risk-management strategy? Be as specific as you can. Provide a real-life example of where risk retention has been used in this way. For maximal points, you should provide explicit statements made by the firm’s decision-makers, either from an interview, from the 10-Ks or elsewhere, or an analyst report that describes the firm’s actions in this way.

b. Consider a firm whose operating cashflows are positively correlated with commodity prices. Such a firm would normally want to sell commodity futures so as to minimize the volatility of cashflows. Explain under what circumstances, such a firm might actually find it desirable to buy commodity futures as part of a risk-management strategy? Give a concrete example; the more details you provide, the more points you will get.