Assume you are a corn farmer, and you want to lock in a price for part of your upcoming harvest. You see that the December futures contracts are currently trading at $7.10/bu, and you anticipate basis to be 5-0.05/ba. What is your anticipated hedge price?

Assume you are a corn farmer, and you want to lock in a price for part of your upcoming harvest. You see that the December futures contracts are currently trading at $7.10/bu, and you anticipate basis to be 5-0.05/ba. What is your anticipated hedge price?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 3BIC

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

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Assume you are a corn farmer, and you want to lock in a price for part of your upcoming harvest. You see that the December
futures contracts are currently trading at $7.10/bu, and you anticipate basis to be $-0.05bu. What is your anticipated hedge price?
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