In this case the proceeds of the hedge can be used to finance capital reformation to better serve the new market conditions. Alternatively, it could finance the acquisition of assets better suited to the new circumstances as was done by the European airlines. There is another role that market institutions play. As mentioned earlier, government regulation tends to displace market institutions. The converse is also true.
Markets can be substitutes for government regulation.
Martin Feldstein has suggested that foreign exchange and interest rate markets protect international businesses better than the proposed European Monetary System. In the energy area, futures and options can protect natural gas consumers more effectively than rate regulation with an automatic fuel adjustment clause. In the international arena, there is every reason to believe that the increased use of derivatives can replace much if not all of the potential agreements between consumer and producer governments. During the Gulf War oil derivatives performed beautifully while the stockpile policies of the International Energy Agency failed miserably. The Verleger book misses virtually all of these points.