Identify the derivative contract which benefits Mr. Zhao from his below story: Zhao, the owner of Healthy Hen Farms, is worried about the recent fluctuations in chicken prices or volatility within the chicken market due to reports of bird flu. Zhao wants to protect his business against another spell of bad news. There is an investor in the market who agrees to pay $30 per bird when the birds are ready for slaughter in six months, regardless of the market price. If at that time, the price is above $30, the investor will get the benefit as they will be able to buy the birds for less than the market cost and sell them on the market at a higher price for a profit. If the price falls below $30, Zhao will get the benefit because he will be able to sell his birds for more than the current market price, or more than what he would get for the birds in the open market. Suggest the best derivative contract for Mr. Zhao.
e) Identify the derivative contract which benefits Mr. Zhao from his below story:
Zhao, the owner of Healthy Hen Farms, is worried about the recent fluctuations in chicken prices or volatility within the chicken market due to reports of bird flu. Zhao wants to protect his business against another spell of bad news.
There is an investor in the market who agrees to pay $30 per bird when the birds are ready for slaughter in six months, regardless of the market price. If at that time, the price is above $30, the investor will get the benefit as they will be able to buy the birds for less than the market cost and sell them on the market at a higher price for a profit. If the price falls below $30, Zhao will get the benefit because he will be able to sell his birds for more than the current market
price, or more than what he would get for the birds in the open market. Suggest the best derivative contract for Mr. Zhao.
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