As a cut and wrap cheese processor, you forward sell chunk cheddar cheese based on today’s (September 1) block cheddar cash price of $2.4000/cwt. and enter into an October futures position to hedge the risk. The basis for October block cheese futures is $0.0250/cwt. On September 15, you buy block cheese in the cash market at $2.3815/cwt and the basis is $0.0235. Using the above information, answer the following questions: 1. Is this a short or long hedge? Short Long 2. What is the net hedge price per cwt for the transaction? 3. What happened to basis? Weakened Remained the same Strengthened
As a cut and wrap cheese processor, you forward sell chunk cheddar cheese based on today’s (September 1) block cheddar cash price of $2.4000/cwt. and enter into an October futures position to hedge the risk. The basis for October block cheese futures is $0.0250/cwt. On September 15, you buy block cheese in the cash market at $2.3815/cwt and the basis is $0.0235. Using the above information, answer the following questions: 1. Is this a short or long hedge? Short Long 2. What is the net hedge price per cwt for the transaction? 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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Scenario 3 As a cut and wrap cheese processor, you forward sell chunk cheddar cheese based on today’s (September 1) block cheddar cash price of $2.4000/cwt. and enter into an October futures position to hedge the risk. The basis for October block cheese futures is $0.0250/cwt. On September 15, you buy block cheese in the cash market at $2.3815/cwt and the basis is $0.0235. Using the above information, answer the following questions:
1. Is this a short or long hedge?
Short Long
2. What is the net hedge price per cwt for the transaction?
3. What happened to basis?
Weakened Remained the same Strengthened
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