Futures Contracts, Risk Management

An Australian company purchases wheat on a regular basis and is concerned about rising grain prices. It is now June and the company is in the process of planning their October wheat purchases, which consists of 1,000 tonnes. In order to hedge against rising prices, the company has a choice of either entering a forward contract for October delivery at a price of $250/tonne or using a November grain futures contract. The current futures price for this contract is $240/tonne. The company opts for the November grain futures contract, and hedges their entire October purchases. The contract size is $20/tonne.

(a) Should the company take a long or short position in the futures contract?

(b) How many contracts are required?

(c) It is now October, and the relevant futures price is $280 and the cash (spot) price is $300.

(i) What is the total gain or loss on the company’s futures exposure in $/tonne?

(ii) What is the net cost of the company’s October wheat purchases in $/tonne?

(iii) What is the total cost of the company’s October wheat purchases in $?

(iv) If the company had opted for the forward contract instead of using futures, what would have been the total cost of the company’s October wheat purchases in $?
Posted Date: 10/16/2012 2:45:40 AM | Location : United States







Related Discussions:- Futures Contracts, Assignment Help, Ask Question on Futures Contracts, Get Answer, Expert's Help, Futures Contracts Discussions

Write discussion on Futures Contracts
Your posts are moderated
Related Questions
#qusuppose that a bank sole business is to lend in two region of the world. The lending in each region Has the same characteristic as in example 21.5 of section 21.8. Lending to

Question 1: (a) What are the distinct types of assets under which derivatives can be based upon? (b) Give at least 5 risks that justify the existence of derivatives? Endorse

what are the risk management in an asset register that is not updated on a timely basis

It is a professional organization for associates and academics in the insurance sector. The American Risk and Insurance Association comprises of scholars, carriers and individuals

QUESTION 1 A. Answer all of the following (a) What is risk appetite? (b) List any two risk responses (c) What does ITIL stand for? (d) What is a business case? (

policies for non-cash generating assets


Devise a disaster recovery plan • Business Impact Analysis • Treatment Strategies: o Risk Avoidance o Risk Reduction o Risk Transfer o Risk Retention • Ingredients of a disaster re

First's current stock price is $260. The price may rise to $300 or fall to $170 in one month. The risk-free interest rate is 18% per year. a. Using the replication portfolio app

An insurance company is investigating offering kidnap and ransom insurance. Policies are to be sold to multinational companies to provide cover for certain named employees who are