Choices and their Disadvantages Disadvantages ■ Retention Planned capital expenditures; Increased leverage Protect reputation Weather derivatives Basis risk (weather index >crop yields shipments UGG profitability Thin market low liquidity high costs a Insurance contract Moral hazard use industry volume Basis risk (industry shipments UGG profitability) Thin market low liquidity high costs Should UGg integrate with other coverages? 1515 Choices and their Disadvantages ◼ Retention ◼ Weather derivatives ◼ Insurance contract Disadvantages Planned capital expenditures; Increased leverage; Protect reputation Basis risk (weather index ➔crop yields ➔shipments ➔UGG profitability; Thin market ➔ low liquidity & high costs Moral hazard ➔ use industry volume Basis risk (industry shipments ➔UGG profitability); Thin market ➔ low liquidity & high costs Should UGG integrate with other coverages?