If you want to buy corn in November 2020, but you are worried about potential increases...
If you want to buy corn in November 2020, but you are worried about potential increases in the spot price of corn. How can you use a December futures contract on corn to hedge this price risk?
Homework Answers
Suggestion:
Go Long on forward contract(s) of corn.
Explanation:
The person is afraid of strawberry price rising. He should hedge
his position in such a way that if corn? price rises, he gets a
profit from it.
In this case, when he goes long on forward contract(s) on corn, as the price rises he will get the money. So that he will be able to recover his money from forward contract when the prices rises.
Add Answer to:
If you want to buy corn in November 2020, but you are worried about potential increases...
If you want to sell about 100,000 bushels of Corn in the Autumn. Assume you think...
If you want to sell about 100,000 bushels of Corn in the Autumn. Assume you think that prices are currently high, $2.40 per bushel, and you want to hedge yourself. Discuss two possible hedging strategies : (1) based on futures / forwards, and (2) based on options. Assume that the relevant positions have contract prices or exercise prices of $2.50 per bushel. The price of the option is $ 0.12 (12 cents) per bushel. Indicate how your “real position, derivative...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New York Commodity Exchange (CMX). The contract size is 100 ounces. The initial margin is S3,000, and the maintenance margin is $1,500. 1.a. Suppose that you enter into a long futures contract to buy December for $500 per ounce on the CMX What change in the futures price will lead to a margin call? If you enter a short futures contract, what futures price will...
15. The reason that hedging with futures works is that the cash price tends to be...
15. The reason that hedging with futures works is that the cash price tends to be less/more variable than the basis. Suppose you plan to buy corn in the cash market in November and store it to sell in June. the November casa price is $3.40 (all prices are per bushel) the June 1 cash turns out to be $3.50. The July futures is selling for 33.80 on November 1, while its price on June 1st is $3.60. Please show...
2. Hedge Using Futures A chemical company expects to buy 500,000 barrels of oil at a...
2. Hedge Using Futures A chemical company expects to buy 500,000 barrels of oil at a spot price one year later. In futures market oil futures are available for delivery one year later and the futures price is $63 per barrel now. One futures contract is for 5,000 barrels of oil. (a) The company wants to hedge the risk of oil price in its payment. Which position and how many contracts does the company need to take? (b) The company...
On December 1, 2020, Metallic Wonders Corporation has an inventory of metals carried at a cost...
On December 1, 2020, Metallic Wonders Corporation has an inventory of metals carried at a cost of$1,000,000. The company plans to sell the inventory in about 60 days, and wishes to guarantee the current60‑day futures price of $1,400,000. On December 1, 2020, it takes a $1,400,000 short position in metal futures for delivery in 60 days. No margin deposit is required. The futures position is a qualified fair value hedge of the inventory, and the company elects to use hedge...
show all work. show all calculations. 1. A food processing company knows that it will buy...
show all work. show all calculations.
1. A food processing company knows that it will buy 1 million bushels of corn in three months. The standard deviation of the change in the price per b of bushel over a 3-month period is calculaed 0.055 (5.5%). The company chooses to hedge by buying futures contracts on corn. The sandard deviation of the change in the futures price over 3-month period is 0.065 (6.5%) and the coefficient of correlation between the 3-month...
Use the following information for questions 27 – 29. Bill is a corn farmer in the Texas Panhandle. He has a 10 year average corn production of 25,000 bushels on his farm. At no time in the past 5 year...
Use the following information for questions 27 – 29. Bill is a corn farmer in the Texas Panhandle. He has a 10 year average corn production of 25,000 bushels on his farm. At no time in the past 5 years has that production dropped below 15,000 bushels. On March 5, Bill notices the December CBOT corn futures are trading at $4.178 per bushel. This is a much higher price than Bill has seen in the past and he wants to...
On December 1, 2020, Legoria Co. decided to hedge against potential fluctuations in the price of...
On December 1, 2020, Legoria Co. decided to hedge against potential fluctuations in the price of wheat [this wheat is a special type Wheat for PoBoy loaves] for its forecasted purchases in January of 2021 and bought a futures contract entitling and obliging Legoria Co to purchase 1,000 bushels of wheat on January 2, 2021 for $4.00 per bushel. Since the market price on this date is also $4.00 per bushel, the intrinsic value is zero. Required: 1) Prepare appropriate...
On December 1, 2020, Legoria Co. decided to hedge against potential fluctuations in the price of...
On December 1, 2020, Legoria Co. decided to hedge against potential fluctuations in the price of wheat [this wheat is a special type Wheat for PoBoy loaves] for its forecasted purchases in January of 2021 and bought a futures contract entitling and obliging Legoria Co. to purchase 1,000 bushels of wheat on January 2, 2021 for $4.00 per bushel. Since the market price on this date is also $4.00 per bushel, the intrinsic value is zero. Required: 1) Prepare appropriate...
Assume you are a trader who has bought one July 2020 corn futures contract at a...
Assume you are a trader who has bought one July 2020 corn futures
contract at a price of US$4.05/bu. You deposit US$880 into your
margin account, which the initial margin. The maintenance margin is
US$800. Over the next several trading days in the table below,
identify and quantify clearly any margin calls by calculating and
reporting the daily balance.
Margin Call? If Yes, how much? Day Closing Price US$/bu Action Balance Initial Margin = US$880 Maintenance Margin US$800 Buy July...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New York Commodity Exchange (CMX). The contract size is 100 ounces. The initial margin is S3,000, and the maintenance margin is $1,500. 1.a. Suppose that you enter into a long futures contract to buy December for $500 per ounce on the CMX What change in the futures price will lead to a margin call? If you enter a short futures contract, what futures price will...
15. The reason that hedging with futures works is that the cash price tends to be less/more variable than the basis. Suppose you plan to buy corn in the cash market in November and store it to sell in June. the November casa price is $3.40 (all prices are per bushel) the June 1 cash turns out to be $3.50. The July futures is selling for 33.80 on November 1, while its price on June 1st is $3.60. Please show...
2. Hedge Using Futures A chemical company expects to buy 500,000 barrels of oil at a spot price one year later. In futures market oil futures are available for delivery one year later and the futures price is $63 per barrel now. One futures contract is for 5,000 barrels of oil. (a) The company wants to hedge the risk of oil price in its payment. Which position and how many contracts does the company need to take? (b) The company...
show all work. show all calculations.
1. A food processing company knows that it will buy 1 million bushels of corn in three months. The standard deviation of the change in the price per b of bushel over a 3-month period is calculaed 0.055 (5.5%). The company chooses to hedge by buying futures contracts on corn. The sandard deviation of the change in the futures price over 3-month period is 0.065 (6.5%) and the coefficient of correlation between the 3-month...
On December 1, 2020, Legoria Co. decided to hedge against potential fluctuations in the price of wheat [this wheat is a special type Wheat for PoBoy loaves] for its forecasted purchases in January of 2021 and bought a futures contract entitling and obliging Legoria Co to purchase 1,000 bushels of wheat on January 2, 2021 for $4.00 per bushel. Since the market price on this date is also $4.00 per bushel, the intrinsic value is zero. Required: 1) Prepare appropriate...
Assume you are a trader who has bought one July 2020 corn futures
contract at a price of US$4.05/bu. You deposit US$880 into your
margin account, which the initial margin. The maintenance margin is
US$800. Over the next several trading days in the table below,
identify and quantify clearly any margin calls by calculating and
reporting the daily balance.
Margin Call? If Yes, how much? Day Closing Price US$/bu Action Balance Initial Margin = US$880 Maintenance Margin US$800 Buy July...
Most questions answered within 3 hours.
-
Where is the error in this code sequence?
String s1 = "Hello";
String s2 = "ello";...
asked 11 months ago -
Financial data for Joel de Paris, Inc., for last year
follow:
Joel de Paris, Inc.
Balance...
asked 11 months ago -
Consider this reaction:
Al2(SO4)3 (aq)+ BaCl3
(aq) Al2Cl6 (aq)- +
3BaSO4(s) . What is the...
asked 11 months ago -
Suppose that Savneet is considering increasing her
recent random sample from 20 car rentals to 40...
asked 11 months ago -
Trucks arrive at an unloading terminal at an average rate of 120
per hour.
Trucks arrive...
asked 11 months ago -
Why are methanol and ethanol completely soluble in water while
octanol is not very little soluble....
asked 11 months ago -
A facilities manager at a university reads in a research report
that the mean amount of...
asked 11 months ago -
When the CuSO4 is rehydrated by adding water to the anhydrous
compound, is this an endothermic...
asked 11 months ago -
A ray of sunlight is passing from diamond into crown glass; the
angle of incidence is...
asked 11 months ago -
A block of mass 0.249 kg is placed on top of a light, vertical
spring of...
asked 11 months ago -
how do the kidneys compensate in the presences of acidosis
a) trigger hyperventilate
b) reserve acid...
asked 11 months ago -
Question 501 pts
The rental rate of capital to the firm increases. Which of the
following...
asked 11 months ago