Essay on Ostrich Meat Future Contract

1088 Words Oct 25th, 2011 5 Pages
Future contract #1 Ostrich meat 1. This is a future contract of 60,000 lbs. ostrich meat traded in $0.0001/lb. in Dec., Mar., Jul. and Sep. The seller has to deliver USDA frozen 75-100 pound Grade A ostrich carcasses. The daily Price cannot be $0.05/lb. above or below the previous day’s settlement price.

2. i) According to world – ostrich organization (http://www.world-ostrich.org/demand.htm), the current demand for ostrich meat is way far more than supply. Therefore, there will be a constantly increase in the price of ostrich meat. Investors are reluctant to take short positions of ostrich meat futures; however, there would be a lot of people willing to take long positions. Thus, the long positions will be in far excess of short
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It is too large for retailers of ostrich meat. ii) As the ostrich meat is not a popular kind of meat, the traded market has not enough liquidity, creating wide bid/ask spreads and excessive volatility. Only really expert on ostrich meat will trade on the contract. iii) The delivery method is particularly important for commodities that involve significant transportation costs. However, the delivery method in the contract is not mentioned and may cause confusion.

5. We recommend that the contract not be accepted based on the point (2-4).
I) the ostrich meat is not a popular kind of meat; the traded market has not enough liquidity, creating wide bid/ask spreads and excessive volatility. There will be few potential investors. To improve this we recommend changing the underlying asset into a common kind of meat like pork and beef.
II) The delivery method in the contract is not specific and may cause confusion. To improve this contract, it needs to include detailed method of delivery.

Future contract #2 Credit Card Receivables Security Future Contract 1. This is a contract from credit card receivables securitization, a kind of bonds finance collateralized by credit card receivables. Every Contract of security has a face value at maturity of $100,000 and will mature in 2.5 to 5 years. The price of the contract changes by 1/32 a point but cannot be 3 points above or below the previous day’s