Using the same begging portion of the above problem --A cotton buyer will be making a purchase of cotton on March 1. The buyer recognizes the potential price risk in the market and chooses to h purchase without over hedging. The appropriate futures contract is trading at $0.80/pound. His ex -$0.03/pound. Now consider: On March 1, the cotton buyer purchases 265,000 pounds of cotton in the cash market at a price of appropriate futures contract is trading at $0.72/pound.

Using the same begging portion of the above problem --A cotton buyer will be making a purchase of cotton on March 1. The buyer recognizes the potential price risk in the market and chooses to h purchase without over hedging. The appropriate futures contract is trading at $0.80/pound. His ex -$0.03/pound. Now consider: On March 1, the cotton buyer purchases 265,000 pounds of cotton in the cash market at a price of appropriate futures contract is trading at $0.72/pound.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter21: Risk Management

Section: Chapter Questions

Problem 4P

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After collecting basis data, a canola grower feels that 775 dollars per tonne is a realistic forward cash price for the fall’s crop since November canola futures are trading at 800 dollars per tonne. To hedge, the producer purchases an at-the-money PUT for 20 dollars tonne on May 19th. While the hedge was in place, canola producers in Europe experienced crop failures and consumers in China began to import large quantities of canola produced in Canada. By October 15th, November canola futures had risen to 825 dollars per tonne. However, because of increased local production, the basis in the grower’s region weakened by 5 dollars tonne. On October 15th the grower sold his canola in the cash market. Use T-accounts to answer the following: 1. What is the net selling price from hedging using the PUT?
After collecting basis data, a canola grower feels that 775 dollars per tonne is a realistic forward cash price for the fall’s crop since November canola futures are trading at 800 dollars per tonne. To hedge, the producer purchases an at-the-money PUT for 20 dollars tonne on May 19th. While the hedge was in place, canola producers in Europe experienced crop failures and consumers in China began to import large quantities of canola produced in Canada. By October 15th, November canola futures had risen to 825 dollars per tonne. However, because of increased local production, the basis in the grower’s region weakened by 5 dollars tonne. On October 15th the grower sold his canola in the cash market. Use T-accounts to answer the following: a. What is the net selling price from hedging using the PUT? b. What price would the producer have received if he had hedged using futures? Need answer in short!
A trader enters into a short cotton forward contract when the forwards price is 50 cents per pound. The contract is for the delivery of 50000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is? 20 cents per pound 30 cents per pound In what price forward will be at the money, in the money, and out-the money?
A trader enters into two short cotton futures contracts when the futures price is 80 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 77.20 cents per pound; (b) 82.30 cents per pound? a. If the cotton price at the end of the contract is 77.20 cents per pound, the gain/loss for the trader with the short position is: $____________ b. If the cotton price at the end of the contract is 82.30 cents per pound, the gain/loss for the trader with the short position is: $_____________ Only typed answer and give fast
This is a follow up question so I copied/pasted the same question below for your convenience: An investor enters into a long futures position to buy 5,000 bushels of wheat for 575 cents per bushel. The initial margin is $5,000 and the maintenance margin is $2,500. c. Starting from the original position, the investor would have to see a price movement of _____ cents (above/below) ______ 575 cents in order to withdraw $2,000 from the margin account. So Initial Margin = $5,000;Maintenance Margin = $2,500;Withdraw Amount = $2,000;Original Price per Bushel = 575 cents or $5.75;Number of Bushels = 5,0001. How did you come up with the calculation? You wrote that: (new_price * 5000)/(5.75 * 5000) = withdraw amount/mainenance margin 2. Could you please explain the right side (i.e., why the ratio is withdraw amount to mainenance margin)?
Consider a farmer who plans to sell 6,000 bushels of corns on date T. The date-T spot price of corn is normally distributed with mean $500 per bushel and standard deviation $50 per bushel. To hedge the price risk, the farmer considers shorting corn futures with delivery on date T. The futures price is $480 per bushel, and one contract is to deliver 5,000 bushels. In addition, the farmer can take only integer number of contracts (i.e, a fraction of contract such as 0.1 is NOT allowed). (a) How may contracts does the farmer need to take? (b) What is the mean of the total revenue? (c) What is the standard deviation of the total revenue?
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A farm that produces corn is looking to hedge their exposure to price fluctuations in the future. It is now May 15th and they expect their crop to be ready for harvest September 30th. You have gathered the following information: Bushels of corn they expect to produce 44,000 May 15th price per bushel $3.08 Sept 30 futures contract per bushel $3.22 Actual market price Sept 30 $3.37 Required (round to the nearest dollar): Calculate the gain or loss on the futures contract and net proceeds on the sale of the corn. Net gain or loss on future $Answer Sell the corn $Answer Net $Answer
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The price of the July corn futures is $4.13, and the September corn futures are 10 cents higher. A trader thinks that the spread between July and September will contract.a. How would the trader use a spread order to bet on your view?b. Did the trader buy or sell the spread?c. How much money would you make if the price of July corn futures increases to $5.00 and the September contract drops to $4.50. Assume the spread trade was for 5000 bushels of corn.
An investor enters into a long futures position to buy 5,000 bushels of wheat for 575 cents per bushel. The initial margin is $5,000 and the maintenance margin is $2,500.a. To trigger a margin call the price would have to (rise above/fall below) _______ cents per bushel.b. If the price moved 10 cents farther than the minimum move described in part a, the amount of variance margin required of the investor would be $_______.c. Starting from the original position, the investor would have to see a price movement of _____ cents (above/below) ______ 575 cents in order to withdraw $2,000 from the margin account.
Need help. Instant upvote After collecting basis data, a canola grower feels that 775 dollars per tonne is a realistic forward cash price for the fall’s crop since November canola futures are trading at 800 dollars per tonne. To hedge, the producer purchases an at-the-money PUT for 20 dollars tonne on May 19th. While the hedge was in place, canola producers in Europe experienced crop failures and consumers in China began to import large quantities of canola produced in Canada. By October 15th, November canola futures had risen to 825 dollars per tonne. However, because of increased local production, the basis in the grower’s region weakened by 5 dollars tonne. On October 15th the grower sold his canola in the cash market. Use T-accounts to answer the following: a. What is the net selling price from hedging using the PUT? b. What price would the producer have received if he had hedged using futures?