Example • A farmer sells two soybean futures contracts at a price of $8.91 per bushel. The spot price of soybean is $9.05 per bushel at contract expiration. The farmer harvested 14,000 bushels. • (1)What are the farmer's proceeds from the sale of oats if the farmer sell 10,000 bushels with the futures contracts and sell the rest in the spot market? • (2)What are the farmer's proceeds if the farmer sells all the 14,000 bushels of oats in the spot market?
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- A farmer sells futures contracts at a price of $3.65 per bushel. The spot price of corn is $3.15 at contract expiration. The farmer harvested 21,000 bushels of corn and sold futures contracts on 20,000 bushels of corn. Ignoring the transaction costs, how much did the farmer improve his cash flow by hedging sales with the futures contracts? Group of answer choices 9,500 10,500 8,900 10,000 9,000A farmer sells futures contracts at a price of $3.65 per bushel. The spot price of corn is $3.15 at contract expiration. The farmer harvested 21000 bushels of corn and sold futures contracts on 20000 bushels of corn. What are the farmer's proceeds from the sale of ALL the corn? Group of answer choices 73,911 81,040 76,150 68,372 84,711A farmer sells futures contracts at a price of $6.70 per bushel on 10,000 bushels of corn. The spot price of corn is $6.55 at contract expiration. What is the farmer's profit on the futures contracts?
- Assume that the price of December 2021 corn futures is $4.65/bushel in February and $4.50 in October. If spot cash price in October is $4.55, what is the farmer's total revenue? Assume he entered into 20 contracts. Each corn contract is 5000 bushels.Marcus is a wheat trader who believes that the price of wheat will increase in the short-term. He takes a long position (buys) ten wheat contracts to take advantages of future increase in prices. Details of the wheat contract include: Contract size: 5,000 bushels Current (spot) price: $0.70 per bushel Futures price: $0.75 per bushel Calculate his profit/loss from this transaction if the price of wheat is $0.82 per bushel at expiration. $3,500 $4,000 $3,000 $2,500suppose that Mr. Binda buys a three-month 5,000 contracts to buy 'commodity-X at a futures price of $1,000 from Mr. John. The contract requires an initial margin of $70 per contract and maintenance margin of $40 per contract. Required: a) Compute the initial margin that both Mr. Binda must deposit to the clearinghouse. b) Compute the maintenance margin that both Mr. Binda must deposit to the clearinghouse.suppose that Mr. Binda buys a three-month 5,000 contracts to buy 'commodity-X at a futures price of $1,000 from Mr. John. The contract requires an initial margin of $70 per contract and maintenance margin of $40 per contract.Required:a) Compute the initial margin that both Mr. Binda must deposit to the clearinghouse.b) Compute the maintenance margin that both Mr. Binda must deposit to the clearinghouse.
- You are the buyer for a cereal company and you must buy 80,000 bushels of corn next month. The futures contracts on corn are based on 5,000 bushels and are currently quoted at 415′0 cents per bushel for delivery next month. If you want to hedge your cost, you should _____ contracts at a cost of _____ per contract.Farmer Brown grows Number 1 red corn and would like to hedge the value of the coming harvest. However, the futures contract is traded on the Number 2 yellow grade of corn. Suppose that yellow corn typically sells for 90% of the price of red corn. If he grows 100,000 bushels, and each futures contract calls for delivery of 5,000 bushels, how many contracts should Farmer Brown buy or sell to hedge his position?At the end of six months for a wheat farmer who sold previously a six-month wheat futures contract, he may: a. deliver the wheat as per the contract and pay out the original agreed-upon price. b. can sell the wheat via the spot grain market and at the same time sell a futures contract identical to the contract originally taken out. c. will make a profit if the price of wheat has gone up on the day the farmer closes out his contract. d. can sell the wheat via the spot grain market and at the same time buy a futures contract identical to the contract originally taken.
- Fred enters into a futures contract to buy 10,000 pounds of cotton for $8 per pound. The initial margin is 5% of contract value, and the maintenance margin is 75% of the initial margin. What price (per pound) of cotton futures will trigger a margin call? ______. What amount would Fred’s broker have to post in response to this margin call? ______.The futures price of a commodity such as wheat is $2.50 a bushel. Futures contracts are for 10,000 bushels, and the margin requirement is $2,500 a contract. The maintenance market requirement is $1,000. A speculator expects the price of the commodity to rise and enters into a contract to buy wheat. d. If the futures price rises to $2.70, what must the speculator do? e. If the futures price continues to decline to $2.32, how much does the speculatorhave in the account?Minetech Resources Berhad anticipates the need to purchase 80,000 bushels of soybeans in six months to use in their products. The current cash price for soybeans is RM5.50 a bushel. A six-month futures contract for soybeans can be purchased at RM5.53. Show all your working steps. i)Explain why Minetech Resources Berhad might need to purchase futures contracts to hedge their position. ii)To completely hedge their exposure, how many contracts will they need to purchase? Soybeans trade in 5,000-bushel contracts. iii)If the cash price of soybeans ends up at RM5.75 per bushel after six months, by how much will the actual cost of 80,000 bushels of soybeans have gone up? iv)After the futures contracts are closed outsold at RM5.75, what will be the gain on the futures contracts? v)Considering the answers to parts (iii) and (iv), what is their net position?