Homework Answers
A Financial Market is a platform where securities such as equities, bonds, derivatives etc are traded. There are various types financial market such as -
- Capital Market
- Money Market
- Commodity Market
- Derivatives Market
Derivative Market is place where financial instrument such as Futures and option are traded.
In above case, Farmer may enter into Futures contracts. Thus, This financial transaction took place in the Derivative market.
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. For example, a farmer may enter into a futures contract in which he agrees today...
Today - January 27, 2020, a farmer sells 10 wheat futures contracts to a flour mill...
Today - January 27, 2020, a farmer sells 10 wheat futures contracts to a flour mill at S10 per bushel. Each futures contract size is 5,000 bushels of wheat. On the settlement date which is May 10, 2020, assume that the spot price per bushel will be $9.0. Show the settlement between the farmer and the flour mill through: a. Actual delivery, and b.Cash settlement
Consider the following scenario involving a wheat farmer: The wheat farmer sells two futures contracts (each...
Consider the following scenario involving a wheat farmer: The wheat farmer sells two futures contracts (each contract =10000 bushels of wheat) at a price of $3.50 per bushel of wheat to help hedge wheat prices. At the time the contract expires the spot price of wheat is $3.00 per bushel. The wheat farmer harvested 25000 bushels of wheat and delivers the previously sold futures contracts. we wheat farmer sells two futures contracts. What is the total cashflow the farmer van...
George Q. Farmer grows soybeans. He estimates his October harvest at 55,000 bushels. The spot price...
George Q. Farmer grows soybeans. He estimates his October harvest at 55,000 bushels. The spot price of soybeans is currently $9.23/bushel. Soybean futures are defined as 5,000bu, $0.01/bu. November soybeans are quoted at 922. To fully hedge his position George should Buy / Sell ? How many contracts? The basis is $ ? A textbook Hedge will lock in an effective price of $ ?
You purchased 18 August 13 futures contracts on soybeans at a price quote of 1,059′6. Each...
You purchased 18 August 13 futures contracts on soybeans at a price quote of 1,059′6. Each contract is for 5,000 bushels with the price quoted in cents and 1/8 ths of a cent per bushel. Assume the contract price is 1,069′4 when you close out your contract six weeks from now. What will be your total profit or loss on this investment?
A farmer currently holds 6,000 bushels of corn. The local mill is offering a price of...
A farmer currently holds 6,000 bushels of corn. The local mill is offering a price of $3.25 per bushel. Currently, a three-month futures contract is trading at $3.45. The farmer is considering selling to the local mill or holding the corn in inventory and selling a futures contract now. The farmer can store and insure the corn at a cost of 18 cents per bushel per annum to be paid monthly in advance at the beginning of each month. Interest...
Problem 2.2. A company has a short position in futures contract to sell 5,000 bushels of...
Problem 2.2. A company has a short position in futures contract to sell 5,000 bushels of wheat. The company had entered into the contract when the futures price was 225 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. The current futures price is 250 cents per bushel and the margin account balance is $3,250. (a) Determine the net margin deposits to or margin withdrawals from the margin account so far. (6) What price change...
Problem #2 Consider a farmer who is scheduled to harvest wheat at time T. Imagine that...
Problem #2 Consider a farmer who is scheduled to harvest wheat at time T. Imagine that the spot price of wheat at time T is equal to 100 per bushel. What is the total income of the farmer is she sells her wheat - 500 bushels in total - right after it is harvested? Imagine that at time t the farmer chooses to sell 5 futures contracts that stipulate that 100 bushels of wheat be delivered at time T per...
1. Farmer considering a renewable (wind) energy contract to provide 1 acre of land for a...
1. Farmer considering a renewable (wind) energy contract to provide 1 acre of land for a single wind turbine. The turbine will be operational for 10 years and the wind energy company will pay the farmer $5,000 for access to the land. The farmer estimates that he averages about 185 bushels of corn on that acre each year and typically receives around $3.75 per bushel of corn. Per acre cost of farming include: Fertilizer $125 Pesticides $75 Seed $116 Drying...
A 6-month forward contract for corn exists with a price of $1.70 per bushel. If Farmer...
A 6-month forward contract for corn exists with a price of $1.70 per bushel. If Farmer Jayne decides to hedge her 20,000 bushels of corn with the forward contract, what is her profit or loss if spot prices are $1.65 or $1.80 when she sells her crop in 6 months? Her total costs are $33,000. 5. S0 loss or $3,000 loss $1,000 gain or $1,000 gain A) $1,000 gain or $1,000 loss C) D) B) S0 gain or $3,000 gain...
Google's stock (GOOG) is trading at $1,165.75. You want to enter into a futures contract today...
Google's stock (GOOG) is trading at $1,165.75. You want to enter into a futures contract today to take delivery in 6-months of GOOG. If the 6 month risk-free rate is 2.75% per annum with continuous compounding what should be the price to pay today?
Problem 2.2. A company has a short position in futures contract to sell 5,000 bushels of wheat. The company had entered into the contract when the futures price was 225 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. The current futures price is 250 cents per bushel and the margin account balance is $3,250. (a) Determine the net margin deposits to or margin withdrawals from the margin account so far. (6) What price change...
Problem #2 Consider a farmer who is scheduled to harvest wheat at time T. Imagine that the spot price of wheat at time T is equal to 100 per bushel. What is the total income of the farmer is she sells her wheat - 500 bushels in total - right after it is harvested? Imagine that at time t the farmer chooses to sell 5 futures contracts that stipulate that 100 bushels of wheat be delivered at time T per...
1. Farmer considering a renewable (wind) energy contract to provide 1 acre of land for a single wind turbine. The turbine will be operational for 10 years and the wind energy company will pay the farmer $5,000 for access to the land. The farmer estimates that he averages about 185 bushels of corn on that acre each year and typically receives around $3.75 per bushel of corn. Per acre cost of farming include: Fertilizer $125 Pesticides $75 Seed $116 Drying...
A 6-month forward contract for corn exists with a price of $1.70 per bushel. If Farmer Jayne decides to hedge her 20,000 bushels of corn with the forward contract, what is her profit or loss if spot prices are $1.65 or $1.80 when she sells her crop in 6 months? Her total costs are $33,000. 5. S0 loss or $3,000 loss $1,000 gain or $1,000 gain A) $1,000 gain or $1,000 loss C) D) B) S0 gain or $3,000 gain...
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