ffee will fall in the short run, and wants to protect the value of its inventory. There is a coffee futures contract at the New York Board of Trade. Each contract is for 37,500 pounds of coffee. Coffee futures price with three months expiration is $ 0.58 per pound. Selling futures contracts provides current inventory price protection where; a). 25 futures contracts covers 937, 500 pounds b). 26 futures contracts covers 975,000 pounds Rising Sun decides to sell 25 near-term futures contracts. Over the next month, the price of coffee falls. He sells its inventory for $ 0.51 per pound. The futures price also falls , to $ 0.52. (There are two months left in the futures contract). Required; I). How did this short hedge perform? II). How much protection did selling futures contracts provide to Rising Sun?
Rising Sun has an inventory of about 950,000 pounds of coffee, valued at $ 0.57 per pound. He fears that the price of coffee will fall in the short run, and wants to protect the value of its inventory. There is a coffee futures contract at the New York Board of Trade. Each contract is for 37,500 pounds of coffee. Coffee futures price with three months expiration is $ 0.58 per pound. Selling futures contracts provides current inventory price protection where;
a). 25 futures contracts covers 937, 500 pounds
b). 26 futures contracts covers 975,000 pounds
Rising Sun decides to sell 25 near-term futures contracts. Over the next month, the price of coffee falls. He sells its inventory for $ 0.51 per pound. The futures price also falls , to $ 0.52. (There are two months left in the futures contract). Required;
I). How did this short hedge perform?
II). How much protection did selling futures contracts provide to Rising Sun?
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