Ask Question, Ask an Expert


Ask Basic Finance Expert

Chococo Inc., a producer of powdered hot chocolate, has just received a large order that will require the purchase of 750 metric tons of cocoa in 3 months. The current spot price of cocoa is $2,645 per metric ton. The standard deviation of the value for the inventory is 0.15. Mr. Dulce, the CFO of the Chococo, is considering a minimum-variance hedge of this future cocoa purchase using the three-month cocoa futures contract. The contract size is 10 metric tons. The volatility of the futures is 0.2. The covariance between the change in the spot and futures cocoa price is 0.027.

a. What is the estimated effectiveness of this minimum variance hedge?

b. What is the correlation of the change in the spot and futures cocoa price?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M942528

Have any Question? 

Related Questions in Basic Finance

Time value of money and financial markets and

Time Value of Money and Financial Markets and Institutions Create a 1,050-word report, and include the following: • Describe the role of the financial institutions and financial markets in our economy • Differentiate bet ...

Jack and jill corporations year-end 2009 balance sheet

Jack and Jill Corporation's year-end 2009 balance sheet lists current assets of $259,000, fixed assets of $809,000, current liabilities of $186,000, and long-term debt of $291,000. What is Jack and Jill's total stockhold ...

A charity holds a raffle in which each ticket is sold for

A charity holds a raffle in which each ticket is sold for $40. A total of 11200 tickets are sold. They raffle one grand prize which is a Mercedes Benz E350 valued at $55000 along with 2 second prizes of Honda motorcycles ...

If your uncle borrows 60000 from the bank at 10 percent

If your uncle borrows $60,000 from the bank at 10 percent interest over the seven-year life of the loan, what equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest (rou ...

Discussioninternational capital budgeting please respond to

Discussion "International Capital Budgeting" Please respond to the following: • Examine the conditions under which the capital expenditure of a foreign subsidiary might have a positive net present value (NPV) in total cu ...

Targeted federal funds rate the fed uses a targeted federal

Targeted Federal Funds Rate : The Fed uses a targeted federal funds rate when implementing monetary policy. However, the Fed's main purpose in its monetary policy is typically to have an impact on the aggregate demand fo ...

You need a 35-year fixed-rate mortgage to buy a new home

You need a 35-year, fixed-rate mortgage to buy a new home for $245,000. Your mortgage bank will lend you the money at an APR of 5.4 percent for this 420-month loan. However, you can afford monthly payments of only $850, ...

Risk and return of commercial paper you have the choice of

Risk and Return of Commercial Paper : You have the choice of investing in top-rated commercial paper or commercial paper that has a lower risk rating. How do you think the risk and return performances of the two investme ...

What is buying on the margindoes it increase or decrease

What is buying on the margin? Does it increase or decrease the risk of large losses? What about gains?

Explain the function of eachanational credit union share

Explain the function of each: (a)National Credit Union Share Insurance Fund; (b)Pension Benefit Guaranty Corporation; (c) Securities Investor Protection Corporation; (d) FDIC

  • 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