Consider a large Australian cotton farmer who has just planted her crop. Once grown, she plans to export her production to China. (a) Explain how each of the following scenarios can affect her revenue: (i) A decrease in U.S. production (the U.S. is a large exporter of cotton to China) (ii) A depreciation in the USD/AUD exchange rate (iii) An economic recession in China (b) Do you think she'll buy back thesame futures contract prior to expiry? Why/why not? (c) Which of the scenarios in (a) will no longer affect her now that she's gone short?
Consider a large Australian cotton farmer who has just planted her crop. Once grown, she plans to export her production to China. (a) Explain how each of the following scenarios can affect her revenue: (i) A decrease in U.S. production (the U.S. is a large exporter of cotton to China) (ii) A depreciation in the USD/AUD exchange rate (iii) An economic recession in China (b) Do you think she'll buy back thesame futures contract prior to expiry? Why/why not? (c) Which of the scenarios in (a) will no longer affect her now that she's gone short?
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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Consider a large Australian cotton farmer who has just planted her crop. Once grown, she plans to export her production to China.
(a) Explain how each of the following scenarios can affect her revenue:
- (i) A decrease in U.S. production (the U.S. is a large exporter of cotton to China)
- (ii) A
depreciation in the USD/AUD exchange rate - (iii) An economic recession in China
(b) Do you think she'll buy back thesame futures contract prior to expiry? Why/why not?
(c) Which of the scenarios in (a) will no longer affect her now that she's gone short?
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