Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

A wheat farmer expects to harvest 260,000 bushels of wheat in September. In order to pay for the seed and equipment the farmer had to withdraw $150,000 from his savings account on January 1 of this year. He earns 4.8% interest on the savings account and interest on the account accrues monthly in arrears. The farmer is worried about fluctuation in the wheat price and wishes to hedge the position. Wheat futures are currently quoted as follows:

September: 341 cents/bushel

December: 355.5 cents/bushel

The prices quoted are in cents per bushel and wheat futures contracts are per 5000 bushels.

a.) Construct the perfect hedge for the farmer using futures contract. How many contracts does he need to buy or sell?

b.) What is the effective price he receives for the wheat if there is basis risk? The December Futures price is 348 in September.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M938661

Have any Question? 


Related Questions in Basic Finance

1 generate three examples of nominal variables and three

1. Generate three examples of nominal variables and three examples of quantitative variables that were not mentioned in the chapter. 2. On a piece of paper make two columns. In one column list all of the advantages of fr ...

In using the balanced scorecard as a strategic management

In "Using the Balanced Scorecard as a Strategic Management System" by Robert S. Kaplan and David P. Norton (Harvard Business Review, January-February 1996), the following appeared on page 2 of the article: Managers using ...

Explain why interest rate swaps are more widely used than

Explain why interest rate swaps are more widely used than currency and equity swaps? Explain how swaps are similar to but different from forward contracts? Suppose that a party engages in a swap, but before the expiratio ...

1 what is the primary distinction between mortgage-related

1. What is the primary distinction between mortgage-related securities backed by residential mortgages and those backed by commercial mortgages? 2. Name the major types of credit enhancement used for commercial-backed mo ...

A video posted to the wall street journals web site in

A video posted to the Wall Street Journal's Web site in mid-2010 was titled "Equities May Have Rallied Too Much, Buy Puts." a. What are equities? b. What does it mean that "equities may have rallied too much"? c. If equi ...

For this question i had been using spirit airlines 2015 10k

For this question I had been using Spirit AIrlines 2015 10k report on module 1. However, I'm a bit lost as to how to read it in terms of bonds. Can someone explain this to me?  http://ir.spirit.com/financials.cfm  Using ...

How are the payment terms of an fra different from those of

How are the payment terms of an FRA different from those of most other interest rate derivatives? Explain how FRAs are like swaps and how they are different? Compare the use of interest rate options with forward rate agr ...

Prepare an outline for a report presentationreview an

Prepare an outline for a report presentation. Review an analytical or recommendation report you prepared in Chapter 10. Assume that you have been given 15 minutes to present the most important information from your writt ...

Select one construct from the following Select one construct from the following list:

Select one construct from the following list: self-esteem femininity/masculinity creativity hunger motivation fear Briefly describe how it might be measured using: a. an operational definition based on selfreport (for ex ...

How would a financial manager determine optimal capital

How would a financial manager determine optimal capital structure? How this would fit in with the company's capital expenditures, growth plans and operating results?

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen