You manage a food company. The company will need 850,000 bushels of soya bean in 3 months. The 3 months futures price is $6.00. You are afraid the cash price may rise above $6.00. One futures contract is for 5,000 bushels. What can you do in the futures market to avoid price risk? (b) You invest in £8 million in British bonds paying 8% interest that will mature in 2 year. You are afraid that $ will become stronger in the future against the £. The futures price is £1 = $1.70. How can you hedge against exchange rate risk using £ futures? I contract is for £62,500.

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
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You manage a food company. The company will need 850,000 bushels of soya bean in 3 months. The 3 months futures price is $6.00. You are afraid the cash price may rise above $6.00. One futures contract is for 5,000 bushels. What can you do in the futures market to avoid price risk? (b) You invest in £8 million in British bonds paying 8% interest that will mature in 2 year. You are afraid that $ will become stronger in the future against the £. The futures price is £1 = $1.70. How can you hedge against exchange rate risk using £ futures? I contract is for £62,500.

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