Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

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

1 describe integrative management be specific concerning

1. Describe "integrative management." Be specific concerning the relationship between functionality and process. 2. In terms of enterprise extension, describe the importance of the information sharing and process special ...

Fee founders has perpetual preferred stock outstanding that

Fee founders has perpetual preferred stock outstanding that sells for $60 a share and pays a dividend of $5 at the end of each year. What is the required rate of return?

Design grammars for the following languagesa the set of all

Design grammars for the following languages: a) The set of all strings of 0s and 1s such that every 0 is immediately followed by at least one 1. ! b) The set of all strings of 0s and 1s that are palindromes; that is, the ...

Mm proposition i with taxesthe maxwell company is financed

MM Proposition I with Taxes The Maxwell Company is financed entirely with equity. The company is considering a loan of $1.72 million. The loan will be repaid in equal installments over the next two years, and it has an i ...

1 as chief financial officer you sell newly issued bonds on

1. As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is: a. borrowing indirectly. b. borrowing directly. c. lending directly. d. lending indirectly. 2. In which of the following ins ...

Compare and contrast the cash conversion cycles ccc of

Compare and contrast the cash conversion cycles (CCC) of Caterpillar Inc. (ticker: U:CAT), Ingersoll-Rand Company Limited (U:IR), and Terex Corp. (U:TEX). Calculate the average age of inventory (AAI), average collection ...

The following excerpt is from integrating strategic and

The following excerpt is from "Integrating Strategic and Financial Planning" by Lee Ann Runy (2005), which appeared on hospitalconnect.com (www.hhnmag.com/hhnmag app/hospitalconnect/search/article.jsp? dcrpath=HHNMAG/Pub ...

The suboptimal glass company uses a process of capital

The Suboptimal Glass Company uses a process of capital rationing in its decision making. The firm's cost of capital is 10 percent. It will only invest $77,000 this year. It has determined the internal rate of return for ...

1 design an observational study of your own including the

1. Design an observational study of your own, including the creation of a set of behavioral categories that would be used to code for one or more variables of interest to you. Indicate the decisions that you have made re ...

Explain how a short call added to a protective put forms a

Explain how a short call added to a protective put forms a collar and how it changes the payoff and up-front cost? Explain the process by which the profit of a short straddle closed out prior to expiration is influenced ...

  • 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