A grain exporter needs 1.9 million bushels of wheat to export in the month of December. In August, they are fairly certain wheat prices are going to go up, so they want to lock in prices for November purchase. They decide to hedge and purchase December KC HRW contracts. In August, the December futures price is $8.9875 with a basis of - $0.09. Brokerage fees for each contract is $5.00 round turn. On November 15, December KC HRW futures are trading at $9.0475 per bushel and the cash price is $8.9975. What was the net price paid per bushel for this scenario?

A grain exporter needs 1.9 million bushels of wheat to export in the month of December. In August, they are fairly certain wheat prices are going to go up, so they want to lock in prices for November purchase. They decide to hedge and purchase December KC HRW contracts. In August, the December futures price is $8.9875 with a basis of - $0.09. Brokerage fees for each contract is $5.00 round turn. On November 15, December KC HRW futures are trading at $9.0475 per bushel and the cash price is $8.9975. What was the net price paid per bushel for this scenario?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.6P

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Question

A grain exporter needs 1.9 million bushels of wheat to export in the
month of December. In August, they are fairly certain wheat prices are
going to go up, so they want to lock in prices for November purchase.
They decide to hedge and purchase December KC HRW contracts.
In August, the December futures price is $8.9875 with a basis of -$0.09.
Brokerage fees for each contract is $5.00 round turn.
On November 15, December KC HRW futures are trading at $9.0475 per
bushel and the cash price is $8.9975.
What was the net price paid per bushel for this scenario?

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