Ask Question, Ask an Expert


Ask Basic Finance Expert

You are a sugar dealer anticipating the purchase of 250,000 pounds of sugar in three months. You are concerned that the price of sugar will rise, so you take a long position in sugar futures. Each contract covers 112,000 pounds, and so, rounding to the nearest contract, you decide to go long in two contracts. The futures price at the time you initiate your hedge is 19.56 cents per pound. Three months later, the actual spot price of sugar turns out to be 20.65 cents per pound and the futures price is 20.85 cents per pound.

a. Determine the effective price at which you purchased your sugar. How do you account for the difference in amounts for the spot and hedge positions?

b. Describe the nature of the basis risk in the long hedge.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M947380

Have any Question? 

Related Questions in Basic Finance

Suppose that lilymac photography has annual sales of 232000

Suppose that LilyMac Photography has annual sales of $232,000, cost of goods sold of $167,000, average inventories of $4,700, average accounts receivable of $25,400, and an average accounts payable balance of $7,200. Ass ...

Explain how buying behavior of business customers in

Explain how buying behavior of business customers in different countries may have been a factor in speeding the spread of international marketing.

Many economists have argued that japans economic problems

Many economists have argued that Japan's economic problems during the 1990s were caused largely by bank failures and the refusal of the Japanese government to clean up the banking system. Explain how a collapse of the ba ...

Questionhypothesis testing scenariocaptionnbspas you

Question: Hypothesis Testing Scenario Caption:  As you prepared your memo about the new "Tire Kit" line, you discovered that the sample size that you were provided was insufficiently small. Using a larger sample of 200 c ...

I need someone to write my outline heshe can pick any topic

I need someone to write my outline. He/She can pick any topic from the book. Please let me know ASAP. The instructions: D. Research Paper: The research paper should discuss a topic related to fund or non-profit accountin ...

Define commercial paper negotiable certificates of deposit

Define commercial paper, negotiable certificates of deposit, repurchase agreements, bankers' acceptances, federal funds, and Eurodollars. In what ways are they similar, and in what ways are they different?

Festwalia has two types of workers low-skill workers who

Festwalia has two types of workers: low-skill workers, who earn $10 per hour, and high-skill workers, who earn $20 per hour. The government of Festwalia currently imposes a 20% proportional tax on all labor earnings. It ...

Finanical statment analysiswrite at least 3 paragraphs

Finanical Statment Analysis Write at least 3 paragraphs answering the following: What is the SEC, and what is its role in protecting the integrity of financial statements prepared and disseminated by publically traded co ...

You drink 5 beers to celebrate the end of your risk

You drink 5 beers to celebrate the end of your risk management and insurance class, then have an accident while driving home from the bar. The police charge you with drunk driving, and with hitting another automobile fro ...

Chris and harold yoshida are a young couple with a growing

Chris and Harold Yoshida are a young couple with a growing income. What will happen to their demand for money over time?

  • 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

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate