Futures Contracts, Risk Management

Assignment Help:
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 $?

Related Discussions:- Futures Contracts

Requirement of relevant control of iso, Question: For each of the situa...

Question: For each of the situations below:- (a) Mention most relevant clause of ISO 27001:2005 (b) Whether the practice followed in the organization is appropriate and i

State the types of international risk, International Risk: International r...

International Risk: International risk can include exchange rate risk and country risk. (i) Exchange Rate Risk: All investors who invest internationally in today's increasing

Monetery value, What is the monetary certainty equivalent, Risk Management

What is the monetary certainty equivalent, Risk Management

Techniques of risk management, identify risks faced by a banking institutio...

identify risks faced by a banking institution and ways of preventing them

Risk management, Risk Management Many organization and investors engag...

Risk Management Many organization and investors engage in activities designed to manage the risks they face. In the corporate world the managers' search to control business ri

What is avoidance of risk, Q. What is Avoidance of Risk? A business fir...

Q. What is Avoidance of Risk? A business firm can avoid risk by not accepting any assignment or any transaction which involves any type of risk whatsoever. This will naturally

Define the meaning of return, Define the meaning of Return Return is th...

Define the meaning of Return Return is the amount or rate of produce, profits, proceeds which accrues to an economic agent from an undertaking or investment. It's a reward for

Risk management, Several issues have arisen on the Kauri Café Project. Four...

Several issues have arisen on the Kauri Café Project. Four months have passed since the project started. ABC Co. are complaining about not being paid appropriately you initially th

Differentiate between speculation and arbitraging, Question: a) Using i...

Question: a) Using illustrative and numerical example, differentiate between speculation and arbitraging in the context of foreign exchange market. b) One year borrowing and

Conducting risk assessment in a confined space, Probelm 1: Describe the...

Probelm 1: Describe the factors that should be considered when conducting risk assessment in a confined space. Probelm 2: (a) Distinguish between workplace-based and

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd