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- A cotton buyer will be making a purchase of 245,000 pounds of cotton on March 1. The buyer recognizes the potential price risk in the market and chooses to hedge as much of this purchase without over hedging. The appropriate futures contract is trading at $0.80/pound. His expected basis is -S0.04/pound. On March 1, the cotton buyer purchases 265,000 pounds of cotton in the cash market at a price of S0.90/pound. The appropriate futures contract is trading at $0.92/pound. 9. Determine his overall outcome (realized revenue) from both the cash and futures transactions.Given the following information, what would you expect to be the minimum price at which a 3 month futures contract for 100 bushels of wheat would be trading? The spot price of wheat is $8 per bushel. Storage and insurance costs for wheat are $.50 per 100 bushels, per month, payable at the end of the storage period. • You can borrow money at 8% per year. a) $865.50 b) $814.50 c) $816.50 d) $817.5Pls help with below homework. 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?
- On January 1,2015, Nathan Co paid 6,000 cash to acquire a put foreign exchange option FC37,500 which expires at the end of the year. The option hedges 2015's forecasted sales of FC37,500.Nathan's fiscal year ends every October 31. 1/1/15 10/31/15 12/31/15Spot rate ( market price) 1.45. 1.20 1.30Strike price (exercise price) 1.40 1.40 1.40Fair value of put action 6,000 25,250 Determine the intrinsic value at inception of the option contract.12,7504,1256,0000NGW, a consumer gas provider, estimates a rather cold winter. as a result it decides to enter into a futures contract on the nymex for natural gas on november 2, 2016. the trading unit is 10,000 million british thermal units (mmbtu). the three-month futures contract rate is $7.00 per mmbtu, so each contract will cost ngw $70,000. in addition, the exchange requires a $5,000 deposit on each contract. ngw enters into 20 such contracts. REQUIRED: why is this futures contract likely to be considered an effective hedge and therefore qualified for hedge accounting? why would this transaction be accounted for as a cash-flow hedge? assume that the december 31, 2016, futures contract rate is $6.75 for delivery on february 2, 2017, and the spot rate on february 2, 2017, is $6.85. assume that ngw sells all of the gas on february 3, 2017, for $8.00 per mmbtu. prepare all the necessary journal entries from november 2, 2016, through february 3, 2017, to account for this hedge situation.Rising Sun has an inventory of about 950,000 pounds of coffee, valued at $ 0.57 per pound. He fears that the price of coffee will fall in the short run, and wants to protect the value of its inventory. There is a coffee futures contract at the New York Board of Trade. Each contract is for 37,500 pounds of coffee. Coffee futures price with three months expiration is $ 0.58 per pound. Selling futures contracts provides current inventory price protection where; a). 25 futures contracts covers 937, 500 pounds b). 26 futures contracts covers 975,000 pounds Rising Sun decides to sell 25 near-term futures contracts. Over the next month, the price of coffee falls. He sells its inventory for $ 0.51 per pound. The futures price also falls , to $ 0.52. (There are two months left in the futures contract). Required; I). How did this short hedge perform? II). How much protection did selling futures contracts provide to Rising Sun?
- In the US futures contract for Arabica, the most widely produced coffee beans, is traded at Intercontinental Exchange (ICE). Each contract covers 37,500 pounds of coffee. Suppose you long 5 Dec. 2022 contracts with the exercise price of 101.6 cents per pound. You are required to deposit $4,500 for each contracts in a margin account. Maintenance Requirement for each contract is $4,000. a) Suppose price of coffee in spot market jumps to 102.6 cents per pound. What will be the balance in your margin account? b) To what price coffee must change in order for you to get a margin call?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 company is planning to sell its 90-day commercial paper to investors by offering an 8.4 percentyield. If the face value of a three-month Treasury bill is GHS1000 which is also selling at GHS950,the credit risk premium is estimated to be 0.6 percent, and there is a 0.4 percent tax adjustment,then what is the liquidity premium on the commercial papeThe spot price of corn is $5.85 per bushel. The effective interest rate for an investor is 0.5% per month. If storage costs of $0.04 per bushel per month are factored in, what is the likely price of a 4-month no-arbitrage forward contract? O$5.808 O $6.059 $5.968 $6.129Assume that the price of December 2021 corn futures is $4.65/bushel in February and $4.50 in October. If spot cash price in October is $4.55, what is the farmer's total revenue? Assume he entered into 20 contracts. Each corn contract is 5000 bushels.