3. Suppose you are a derivatives trader specializing in creating customized commodity for-ward contracts for clients and then hedging your position with exchange-traded futurescontracts. Your latest position is an agreement to deliver 100,000 gallons of unleaded gas-oline to a client in three months.a. Explain how you can hedge your position using gasoline futures contracts.b. If the only available gasoline futures contracts call for the delivery of 42,000 gallonsand mature in either two or four months, describe the nature of the basis risk involvedin your hedge.

Part a: Hedging is a method of reducing risk. We use hedging technique to reduce the potential…

Answered: 3. Suppose you are a derivatives trader…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Suppose that March oil futures have the price of $65/barrel, and the size of the contract is 1,000 barrels. When the contract matures in March, what will be the profit of a single long futures contract if the spot price is $68.50/barrel? Only typed Answer and give Answer fast
Suppose that your company is planning to sell 1.25 million litres of fuel in two years. Thecurrent price of fuel is £1.60 per litre. a) Suppose there is a two-year heating oil futures contract available. The futuresprice is £1.63 per litre. How many contracts would you need to fully eliminate yourrisk exposure over the next two years? How many contracts would you need ifyour optimal hedging ratio was 0.75? What position in these contracts would youtake today? Explain. b) Evaluate the outcomes of your hedging strategy if the price of fuel in two years is(1) £1.72 per litre, and (2) £1.58 per litre. In each case assume the heating oilfutures price to be equal to that of the fuel. Comment on your results.
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? ______.
June 2019 Mexican peso futures contract has a price of $0.05197 per MXN. You believe the spot price in June will be 0.05831 per MXN a. What speculative position would you enter into to attempt to profit from your beliefs? O Short position O Long Position b. Calculate your anticipated profits, assuming you take a position in three contracts. (Do not round intermediate calculations. Round your answer to the nearest whole number.) Anticipated profit c. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes? (A Negative value should be indicated with a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number)
Suppose a oil producer wants to hedge against possible price fluctuations in the market. For example, in November, he decides to enter into a short-sell position in a 2 (two) futures contracts in order to limit his exposure to a possible decline in the cash price prior to the time when he will sell his oil in the cash market. Assume that the spot price of oil is $30 and the futures price for a March futures contract is $45. What is the basis? Выберите один ответ: a. 30 b. 7.5 c. 25 d. 15 e. 45
M2
Suppose you are concerned about your firm's jet fuel exposure that you need to acquire in November. Further, your analysis suggests the best futures contract to hedge jet fuel is unleaded gasoline. You decided to hedge for 100% of the price exposure. This is September and the spot prices of jet fuel is $1.108 and RBOB gasoline is $1.121. The RBOB gasoline December futures contact on CME is currently priced at $1.141. Assume two months have passed and you want to close your futures position in November. The spot prices of jet fuel and RBOB gasoline in November are $1.131 and $1.156. All prices are quoted per gallon. The November futures price for December RBOB gasoline is $1.183. Which of the following statements is false based on the above in formation? The gain from the futures hedge is $0.042 per gallon. The basis in November is -$0.027 The RBOB gasoline market is in contango. O The basis in October is -$0.033.
Please answer it with no descriptions or details, with the question numbers and answers, the exact way it should go on according to the red regulations, thank you!
(a) Suppose a trader takes a position on June 5th 2021, in one September 2021 EURO (EUR) future contract at USD1.3094/EUR. The trader holds the position until the last day of trading when the spot price is USD1.2939/EUR. This will be the final settlement price because of price convergence. The trader has EUR125,000 for this investment. (i) If the trader had a long position and he was a speculator, calculate his profit or loss for the position above. (ii) If the trader had a short position and he was a speculator, calculate his profit or loss for the position above. (iii) If the trader had a long position and he was a hedger, calculate his profit or loss for the position above. (iv) If the trader had a short position and he was a hedger, calculate his profit or loss for the position above. (b) Discuss factors that you would consider in evaluating the political risk associated before making FDI in a foreign country.
R3
June 2021 Mexican peso futures contract has a price of $0.05197 per MXN. You believe the spot price in June will be $0.05831 per MXN. MXN500,000 is the contract size of one MXN contract. Required: What speculative position would you enter into to attempt to profit from your beliefs? Calculate your anticipated profits, assuming you take a position in three contracts. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes?
9) This is an exercise about financial futures. Can you please check the picture and answer the question? Only one option is right (A, B, C, or D).

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