An elevator operator purchased 1,000,000 bushels of corn on the cash market on November 1 at $5.60. The operator knows that by the end of November they will need the grain to meet a variety of domestic and foreign orders. The operator faces the risk that before the corn can be sold, market prices will have dropped. On November 1, December corn futures are trading at $5.77 per bushel and the historical basis has been $0.05 under the December. On November 30, December corn futures are trading at $5.49 per bushel and the cash price is $5.36.

An elevator operator purchased 1,000,000 bushels of corn on the cash market on November 1 at $5.60. The operator knows that by the end of November they will need the grain to meet a variety of domestic and foreign orders. The operator faces the risk that before the corn can be sold, market prices will have dropped. On November 1, December corn futures are trading at $5.77 per bushel and the historical basis has been $0.05 under the December. On November 30, December corn futures are trading at $5.49 per bushel and the cash price is $5.36.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter21: Risk Management

Section: Chapter Questions

Problem 4P

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