A hog producer has 300 head of market hogs that will be marketed in March at an average weight of 275 pounds. On January 2, April Lean Hog futures are trading for $98.90/cwt and the basis is -$3.25. On March 15, the producer sells hogs in the cash market and offsets their position in the futures market. April Lean Hogs are trading for $95.60/cwt and the basis is -$3.10. Using the above information, answer the following questions: 1. Is this a short or long hedge? Short Long 2. How many contracts will the operator enter into? 3. What happened to basis? Weakened Remained the same Strengthened
A hog producer has 300 head of market hogs that will be marketed in March at an average weight of 275 pounds. On January 2, April Lean Hog futures are trading for $98.90/cwt and the basis is -$3.25. On March 15, the producer sells hogs in the cash market and offsets their position in the futures market. April Lean Hogs are trading for $95.60/cwt and the basis is -$3.10. Using the above information, answer the following questions: 1. Is this a short or long hedge? Short Long 2. How many contracts will the operator enter into? 3. What happened to basis? Weakened Remained the same Strengthened
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A hog producer has 300 head of market hogs
that will be marketed in March at an average
weight of 275 pounds. On January 2, April Lean
Hog futures are trading for $98.90/cwt and the
basis is -$3.25. On March 15, the producer sells
hogs in the cash market and offsets their
position in the futures market. April Lean Hogs
are trading for $95.60/cwt and the basis is
-$3.10. Using the above information, answer the
following questions:
1. Is this a short or long hedge?
Short Long
2. How many contracts will the operator enter
into?
3. What happened to basis?
Weakened Remained the same Strengthened
4. What is the net hedge price per cwt for the
transaction? (Hint: Divide total revenue by total
pounds sold)
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