You are a potato farmer. In 6 months, you will harvest 10,000,000 lbs of potato. There is currently no active potato future contract, and you want to hedge the price of potato. You did some research and found that corn future can be a good hedge for potato. A corn future is for 5,000 bushel and each bushel weighs 60lbs. The current 6-month corn future contract is trading at $6.45 (each contract is multiple of 5000 bushel, hence each contract is worth 6.45*5000 = $32,275). Daily corn future price has a .94 correlation with potato price; daily corn future volatility/standard deviation is 1.24% and daily potato price volatility/standard deviation is 1.36%. 1. How can you hedge your potato price? 2. Calculate the hedge ratio? 3. Calculate the number of contracts you will need to hedge, assuming you can transact fraction of a contract.

Suppose that you are a wheat farmer. Answer the following questions. It is August, and you intend to have 50,000 bushels of wheat harvested and ready to sell in November. The current spot market price of wheat is $2.45 per bushel, and the current December futures price of wheat is $2.70 per bushel. If each wheat futures contract is for 5,000 bushels, how many contracts will you buy or sell? You will sell 10 contracts. (Enter your response as an integer.) The total value of these futures contracts is $135000. (Enter your response as an integer.) It is now November, and you sell 50,000 bushels of wheat at the spot price of $2.55 per bushel. If the futures price is $2.80 and you settle your position in the futures market, what was your gain or loss on your futures market position? The loss on your futures market position was $5,000. (Enter your response as an integer.) on your spot market position was $ (Enter your response as an integer.) The

A farmer is currently growing wheat and plans to sell it in September next year. He needs to plan his budget now, because of upcoming expenses. Suppose that the futures price of wheat for September delivery is £100 per ton. There is 50% probability that the spot price of wheat in September will be £90 per ton or £110 per ton. a)  Suppose that the farmer is certain that he will need to sell 2 tons of wheat in September. Explain how the farmer could lock in today his future revenue.

A farmer is currently growing wheat and plans to sell it in September next year. He needs to plan his budget now, because of upcoming expenses. Suppose that the futures price of wheat for September delivery is £100 per ton. There is 50% probability that the spot price of wheat in September will be £90 per ton or £110 per ton. Suppose that the farmer is not certain about the quantity of wheat he will sell in September. For each possible price of wheat, there are two equally likely quantities, i.e., there are four equally likely price-quantity pairs, which are shown in the Table that is attached as an image below. Based on the above information and table attached in the images, please answer following question: Suppose the farmer takes a futures position on his expected production of wheat in September. Will this strategy help him reduce his risk? Explain why.