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

Safety and health policy, Question: Under Section 6 of the Occupational...

Question: Under Section 6 of the Occupational Safety and Health Act 2005, employers have a statutory duty to prepare and keep revised a written statement of their safety and he

Risk Analysis & Modelling , Fire Risk model 1 1. Introduction The new All...

Fire Risk model 1 1. Introduction The new All-Scotland Fire Authority wishes to maximise the effectiveness of the service it provides to the Public, given the reduced budget it w

Underwriting Principles, Which of the following statements about group insu...

Which of the following statements about group insurance underwriting principles is (are) true? I. If a plan is contributory, 100 percent of the eligible employees must be covered.

Finance , #qusuppose that a bank sole business is to lend in two region of ...

#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

Decision tree project, You work for a company that sells expensive equipmen...

You work for a company that sells expensive equipment to other companies. The marketing director has closed on a substantial sale (for your company) but the customer has requested

Determine about the bull-bear market risk, Bull-Bear Market Risk Thi...

Bull-Bear Market Risk This risk arises from the variability in the market returns resulting from alternating bull and bear market forces. Ø when security index rises fair

New student, what are the risk in management when you don''t have a fix pla...

what are the risk in management when you don''t have a fix plan of what you want o accomplish?

Financial services policy, On successful completion of FSAP, the EC conclud...

On successful completion of FSAP, the EC concluded that the EU FS industry still had strong untapped economic and employment growth potential. As a result, the White Paper on Finan

Risk management decisions should be transparent, Risk management decisions ...

Risk management decisions and practices should be transparent Risk management should include the identification and systematic documentation of all elements of the risk managem

Define risk analysis, RISK ANALYSIS: THE NEW  PARADIGM  IN FOOD SAFETY  ASS...

RISK ANALYSIS: THE NEW  PARADIGM  IN FOOD SAFETY  ASSURANCE   In  the  early  part  of  the  20th  Century, safety  concerns  led  to  the development of performance  criteria

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