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producers and consumers to lock in the price of raw materials and/or the final product. A paper producer that worries final product prices will drop too low may enter into a swap agreement that ensures it will be reimbursed by a bank-like third party if the price drops below a certain rate. Conversely, these agreements stipulate that if the prices should rise above the rate, the paper producer must reimburse the counter-party. Either way, the net effect is the same: The producer never winds up paying more or less than the price agreed upon. Production costs and profit margins are easily predicted and managed.
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