Homework Answers
B. A short hedge - sell wheat futures contracts as a hedge against a decline in the price of wheat.
A wheat farmer would want to lock-in the price at which he sells his wheat in the future and therefore would enter into a futures contract to sell wheat such that he avoids a decline in the price of wheat.
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22. Which type of hedge would a wheat farmer select? A. A long hedge-buy wheat futures...
4 Course Exam 17. Two years ago, Sheila invested $1,000 in MNO mutual fund. At the...
4 Course Exam 17. Two years ago, Sheila invested $1,000 in MNO mutual fund. At the end of the first year, her account was worth $1,200, and she invested another $1,000. At the end of the second year, MNO's shares were priced at $50 per share. MNO paid no dividernds during the 2-year period. If Sheila originally purchased 22 shares, calculate MNO's annualized rate of return over the 2-year period. A. 0.53% B. 4.88% C. 10% D. 20% 22. Which...
Consider the following scenario involving a wheat farmer: The wheat farmer sells two futures contracts (each...
Consider the following scenario involving a wheat farmer: The wheat farmer sells two futures contracts (each contract =10000 bushels of wheat) at a price of $3.50 per bushel of wheat to help hedge wheat prices. At the time the contract expires the spot price of wheat is $3.00 per bushel. The wheat farmer harvested 25000 bushels of wheat and delivers the previously sold futures contracts. we wheat farmer sells two futures contracts. What is the total cashflow the farmer van...
In May, Green Grains Inc. placed a long futures positions to hedge against a possible increase...
In May, Green Grains Inc. placed a long futures positions to hedge against a possible increase in the price of wheat, a key raw material in the production of flour. Based on the selling price that Green Grains earns from its customers, the maximum price that it can pay for wheat is $7.50 per bushel to break even. You also have the following information and assumptions: (1) The current spot price of wheat is $5.63 per bushel, and the September...
Today - January 27, 2020, a farmer sells 10 wheat futures contracts to a flour mill...
Today - January 27, 2020, a farmer sells 10 wheat futures contracts to a flour mill at S10 per bushel. Each futures contract size is 5,000 bushels of wheat. On the settlement date which is May 10, 2020, assume that the spot price per bushel will be $9.0. Show the settlement between the farmer and the flour mill through: a. Actual delivery, and b.Cash settlement
If a farmer wants to protect the value of their unharvested crop, they should a. buy...
If a farmer wants to protect the value of their unharvested crop, they should a. buy in the futures market thereby gaining a short position in it b. sell in the futures market thereby gaining a long position in it c. sell in the futures market thereby gaining a short position in it d. buy in the futures market thereby gaining a long position in it e. none of the above
2. Hedge Using Futures A chemical company expects to buy 500,000 barrels of oil at a...
2. Hedge Using Futures A chemical company expects to buy 500,000 barrels of oil at a spot price one year later. In futures market oil futures are available for delivery one year later and the futures price is $63 per barrel now. One futures contract is for 5,000 barrels of oil. (a) The company wants to hedge the risk of oil price in its payment. Which position and how many contracts does the company need to take? (b) The company...
6. It is currently November 15 and a hog farmer expects to have 200,000 Ibs. of hogs for sale in April of next year. He decides to engage the futures market to hedge his production. The November...
6. It is currently November 15 and a hog farmer expects to have 200,000 Ibs. of hogs for sale in April of next year. He decides to engage the futures market to hedge his production. The November cash price is 65 cents per pound (the amount he needs to earn to make an acceptable profit). The November 15 futures market price for April delivery is 55 cents per pound. The actual cash price in April is 45 cents per pound,...
1. The three-month futures price for the British pound is $1.3160/£. You expect the spot price...
1. The three-month futures price for the British pound is $1.3160/£. You expect the spot price three months from today to be $1.2690/£. The British pound futures contract size is £62,500. a. If you are a speculator would you buy the futures contracts or short (sell) them. Explain your answer in your own words. b. How much profit would you make if you trade 62 contracts and your expectations come true? c. If you were an MNC with A/R (accounts...
The derivatives markets contain different types of contracts. Forward contracts, futures contracts, options, and swaps are...
The derivatives markets contain different types of contracts. Forward contracts, futures contracts, options, and swaps are some common types of derivatives contracts. True or False: One of the major differences between futures and forward contracts is that forward contracts are revalued and marked-to-market daily, whereas futures contracts are traded on an organized exchange. O False True Which of the following are used to hedge against fluctuating interest rates, stock prices, and exchange rates? Commodity futures Financial futures O Ahmad feels...
Suppose you are a farmer and you enter a long put position on corns to hedge...
Suppose you are a farmer and you enter a long put position on corns to hedge your risk. Which of the following cannot help to reduce the cost of insurance? A. Long another put option with smaller strike price. B. Choose a smaller strike price instead. C. Short another call option with higher strike price. D. Use a short forward position instead.
4 Course Exam 17. Two years ago, Sheila invested $1,000 in MNO mutual fund. At the end of the first year, her account was worth $1,200, and she invested another $1,000. At the end of the second year, MNO's shares were priced at $50 per share. MNO paid no dividernds during the 2-year period. If Sheila originally purchased 22 shares, calculate MNO's annualized rate of return over the 2-year period. A. 0.53% B. 4.88% C. 10% D. 20% 22. Which...
2. Hedge Using Futures A chemical company expects to buy 500,000 barrels of oil at a spot price one year later. In futures market oil futures are available for delivery one year later and the futures price is $63 per barrel now. One futures contract is for 5,000 barrels of oil. (a) The company wants to hedge the risk of oil price in its payment. Which position and how many contracts does the company need to take? (b) The company...
6. It is currently November 15 and a hog farmer expects to have 200,000 Ibs. of hogs for sale in April of next year. He decides to engage the futures market to hedge his production. The November cash price is 65 cents per pound (the amount he needs to earn to make an acceptable profit). The November 15 futures market price for April delivery is 55 cents per pound. The actual cash price in April is 45 cents per pound,...
1. The three-month futures price for the British pound is $1.3160/£. You expect the spot price three months from today to be $1.2690/£. The British pound futures contract size is £62,500. a. If you are a speculator would you buy the futures contracts or short (sell) them. Explain your answer in your own words. b. How much profit would you make if you trade 62 contracts and your expectations come true? c. If you were an MNC with A/R (accounts...
The derivatives markets contain different types of contracts. Forward contracts, futures contracts, options, and swaps are some common types of derivatives contracts. True or False: One of the major differences between futures and forward contracts is that forward contracts are revalued and marked-to-market daily, whereas futures contracts are traded on an organized exchange. O False True Which of the following are used to hedge against fluctuating interest rates, stock prices, and exchange rates? Commodity futures Financial futures O Ahmad feels...
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