A small soybean grower expects to harvest one hundred thousand bushels in 6 months. The current cash price for the crop is $16.25 per bushel. The soybean futures contract that matures in four months is currently trading at $16.25 per bushel. Each contract is for five thousand bushels. 1. In 6 months the price of soybeans is $15.25 due to decreased overseas demand, the futures contract is $15.25 per bushel. How much is the gain or loss on the cash crop? On the futures contracts?
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- 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.Flour Millers Ltd (FML) needs to acquire 35,000 bushels (approximately 100,000 kg) of wheat every quarter. The spot price of wheat is currently $8.50 per bushel but is expected to increase. FML is able to purchase call options on wheat (each contract is for 5,000 bushels) with a strike price of $8.50 per bushel and an option premium of $0.50 per bushel. Calculate total expected savings from purchasing the options if FML expects wheat to sell at $10.00 per bushel in 3 months. Conversely, how much did it cost FML to hedge if the wheat price is unchanged in 3 months?For firm needs 1,000,000 barrels of WTI crude oil 6 months from today. You enter into a forward contract to receive WTI crude oil 6 months from today. The current price of a barrel of WTI is $44, the cost of storage for 6-months is $3.9, and the risk-free rate of return is 2% for 6 months. The cost of storage needs to be paid today. What will the maximum contracted price today be for the payment to be made 6-months from now for 1,000,000 barrel delivery? You will pay the counterparty the contracted price 6-months from now. Assume zero transaction costs.
- Three months ago you short a forward contract on soya bean that expires today has a forward delivery price of$400 per Metric Ton. The current forward price is$420 . The three-month risk-free interest rate (with continuous compounding) is8% p.a. What is the value of the short forward contract? A) +$27.92 B) −$27.92 C) +$20.00 D) −$35.68 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 $AnswerA short forward contract on an investment asset that yields 7.2% and was negotiated some time ago will expire in 10 months and has a delivery price of $68. The current spot price of the commodity is $48. The risk-free interest rate (with continuous compounding) is 3.5%. What is the value of the short forward contract
- Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter's production of catalytic converters. It buys three-month futures contracts for 10,000 ounces at a price of $1,290 per ounce. Suppose the spot price of platinum falls to $1,195 in three months' time, answer the following: a-1. Calculate the profit or loss on the futures contract. Note: Enter the amount as a positive value. a-2. What is the total cost to Phoenix of buying the platinum? Suppose the spot price of platinum increases to $1,405 after three months, answer the following: b-1. Calculate the profit or loss on the futures contract. Note: Enter the amount as a positive value. b-2. What is the total cost to Phoenix of buying the platinum? a-2. Total cost b-2. Total costCompany XYZ makes widgets. They will have 500 widgets to sell in 6 months. The current price is $60 per widget. The company's cost to create each widget is $40. The company decides to insure its position. The company has the following two options to hedge its risks: enter into a forward contract with a forward price of $61.80 buy a 6 -month $60-strike European put option for a premium of $5.25 The risk-free rate is 6% convertible semiannually. For what range of prices in 6 months would profit for option (1) be greater than the profit for option (2)? A. 56.39 to oo B. 0 to 67.05 C. 67.05 to oo D. 0 to 67.21 E. 67.21 to ooPhoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter's production of catalytic converters. It buys 3-month futures contracts for 10,000 ounces at a price of $950 per ounce. a. Suppose the spot price of platinum falls to $825 in 3 months' time. Does Phoenix have a profit or loss on the futures contract? b-1. Has it locked in the cost of purchasing the platinum it needs? b-2. What is the total lock-in cost? c. If the spot price of platinum increases to $1,025 after 3 months, does Phoenix have a profit or loss on the futures contract? d. What is the total lock-in cost? a. Phoenix Motors has a on the futures contract equal to b-1. Has it locked in the cost of purchasing the platinum it needs? b-2. Total cost c. Phoenix Motors has a on the futures contract equal to d. Total cost
- Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter's production of catalytic converters. It buys 3-month futures contracts for 10,000 ounces at a price of $850 per ounce. a. Suppose the spot price of platinum falls to $775 in 3 months' time. Does Phoenix have a profit or loss on the futures contract? b-1. Has it locked in the cost of purchasing the platinum it needs? b-2. What is the total lock-in cost? c. If the spot price of platinum increases to $975 after 3 months, does Phoenix have a profit or loss on the futures contract? d. What is the total lock-in cost? Phoenix Motors has a b-1. Has it locked in the cost of purchasing the platinum it needs? b-2. Total cost Phoenix Motors has a Total cost on the futures contract equal to on the futures contract equal to C. d.An oil producer expects to have 8,000 barrels of oil to sell in 10 months. How can the producer use forward contracts to create a perfect hedge if each forward contract is written on 1,000 oil barrels and matures in 10 months? Assume the forward price for each barrel of oil today for delivery in 10 months is $80, the spot price of a barrel of oil today is $79 dollars and the spot price of a barrel of oil in 10 months is $82 dollars. What net price does the oil producer receive for each barrel of oil in 10 months?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?