Today, the July 2022 coffee futures price is trading at 120 cents per pound. Fast forward to late July 2022 (for purposes of this question) where we see that the July 2022 coffee futures price dropped to 20 cents per pound. Based on this scenario, you are asked to explain why it would make sense for a coffee exporter (Premium Exporters) to use the coffee future exchange. Assume Premium Exporters are dealing with one lot of coffee. Please select the best explanation based on the below answer choices. If Premium Exporters does not use the futures exchange, they can sell their coffee for 20 cents per pound in July 2022 and fetch $7,500. Why not sell the July 2022 futures contract today at 120, and then buy it back before it expires in late July 2022 at 20. This way, Premium can make $37,500 on the futures trade as opposed to just making $7,500 for the coffee they sell at 20 cents per pound! I. This is the beauty of futures contracts. Any gain/loss on the futures contract trade is offset by the higher/lower amount of money the exporter can fetch for their coffee. If Premium Exporters does not use the futures exchange, they can sell their coffee for 120 cents per pound in July 2022 and fetch $37,500. Why not use the futures exchange! Why not sell the July 2022 futures contract today at 120, and then buy it back before it expires in late July 2022 at 20. This way, Premium can make $37,500 on the futures trade as opposed to just making $7,500 for the coffee they sell at 20 cents per pound! I. This is the beauty of futures contracts. Any gain/loss on the futures contract trade is offset by the higher/lower amount of money the exporter can fetch for their coffee. If Premium Exporters does not use the futures exchange, they can sell their coffee for 20 cents per pound in July 2022 and fetch $7,500. Why not buy the July 2022 futures contract today at 120, and then sell it back before it expires in late July 2022 at 20. This way, Premium loses $37,500 on the futures trade but makes it up by being able to sell their coffee for 120 cents per pound thereby making $37,500. I. This is the beauty of futures contracts. Any gain/loss on the futures contract trade is offset by the higher/lower amount of money the exporter can fetch for their coffee. If Premium Exporters does nothing, they are better off! They can sell their coffee for 120 cents per pound and make $37,500. IV. This is the beauty of futures contracts. Any gain/loss on the futures contract trade is offset by the lower amount of money the exporter can fetch for their coffee.

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
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Today, the July 2022 coffee futures price is trading at 120 cents per pound. Fast
forward to late July 2022 (for purposes of this question) where we see that the
July 2022 coffee futures price dropped to 20 cents per pound. Based on this
scenario, you are asked to explain why it would make sense for a coffee
exporter (Premium Exporters) to use the coffee future exchange. Assume
Premium Exporters are dealing with one lot of coffee. Please select the best
explanation based on the below answer choices.
If Premium Exporters does not use the futures exchange, they can
sell their coffee for 20 cents per pound in July 2022 and fetch
$7,500. Why not sell the July 2022 futures contract today at 120,
and then buy it back before it expires in late July 2022 at 20. This
way, Premium can make $37,500 on the futures trade as opposed
to just making $7,500 for the coffee they sell at 20 cents per pound!
I.
This is the beauty of futures contracts. Any gain/loss on the futures
contract trade is offset by the higher/lower amount of money the
exporter can fetch for their coffee.
If Premium Exporters does not use the futures exchange, they can
sell their coffee for 120 cents per pound in July 2022 and fetch
$37,500. Why not use the futures exchange! Why not sell the July
2022 futures contract today at 120, and then buy it back before it
expires in late July 2022 at 20. This way, Premium can make
$37,500 on the futures trade as opposed to just making $7,500 for
the coffee they sell at 20 cents per pound!
I.
This is the beauty of futures contracts. Any gain/loss on the futures
contract trade is offset by the higher/lower amount of money the
exporter can fetch for their coffee.
If Premium Exporters does not use the futures exchange, they can
sell their coffee for 20 cents per pound in July 2022 and fetch
$7,500. Why not buy the July 2022 futures contract today at 120,
and then sell it back before it expires in late July 2022 at 20. This
way, Premium loses $37,500 on the futures trade but makes it up by
being able to sell their coffee for 120 cents per pound thereby
making $37,500.
I.
This is the beauty of futures contracts. Any gain/loss on the futures
contract trade is offset by the higher/lower amount of money the
exporter can fetch for their coffee.
If Premium Exporters does nothing, they are better off! They can
sell their coffee for 120 cents per pound and make $37,500.
IV.
This is the beauty of futures contracts. Any gain/loss on the futures
contract trade is offset by the lower amount of money the exporter
can fetch for their coffee.
Transcribed Image Text:Today, the July 2022 coffee futures price is trading at 120 cents per pound. Fast forward to late July 2022 (for purposes of this question) where we see that the July 2022 coffee futures price dropped to 20 cents per pound. Based on this scenario, you are asked to explain why it would make sense for a coffee exporter (Premium Exporters) to use the coffee future exchange. Assume Premium Exporters are dealing with one lot of coffee. Please select the best explanation based on the below answer choices. If Premium Exporters does not use the futures exchange, they can sell their coffee for 20 cents per pound in July 2022 and fetch $7,500. Why not sell the July 2022 futures contract today at 120, and then buy it back before it expires in late July 2022 at 20. This way, Premium can make $37,500 on the futures trade as opposed to just making $7,500 for the coffee they sell at 20 cents per pound! I. This is the beauty of futures contracts. Any gain/loss on the futures contract trade is offset by the higher/lower amount of money the exporter can fetch for their coffee. If Premium Exporters does not use the futures exchange, they can sell their coffee for 120 cents per pound in July 2022 and fetch $37,500. Why not use the futures exchange! Why not sell the July 2022 futures contract today at 120, and then buy it back before it expires in late July 2022 at 20. This way, Premium can make $37,500 on the futures trade as opposed to just making $7,500 for the coffee they sell at 20 cents per pound! I. This is the beauty of futures contracts. Any gain/loss on the futures contract trade is offset by the higher/lower amount of money the exporter can fetch for their coffee. If Premium Exporters does not use the futures exchange, they can sell their coffee for 20 cents per pound in July 2022 and fetch $7,500. Why not buy the July 2022 futures contract today at 120, and then sell it back before it expires in late July 2022 at 20. This way, Premium loses $37,500 on the futures trade but makes it up by being able to sell their coffee for 120 cents per pound thereby making $37,500. I. This is the beauty of futures contracts. Any gain/loss on the futures contract trade is offset by the higher/lower amount of money the exporter can fetch for their coffee. If Premium Exporters does nothing, they are better off! They can sell their coffee for 120 cents per pound and make $37,500. IV. This is the beauty of futures contracts. Any gain/loss on the futures contract trade is offset by the lower amount of money the exporter can fetch for their coffee.
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