It is September 10 and Mr. James is making final estimates of this year’s wheat crop. His production is turning out to be much better than anticipated. This causes concern because if his production is better than expected, other farmers must be experiencing the same situation. The current spot price is $2.25 per bushel, and the October wheat futures (5,000 bushels per contract) price is $2.52 per bushel. At the current spot price, Mr James would just break even with his anticipated 60,000 bushels. His wheat will not be ready until October. a) What is the essential feature of a forward contract that makes a futures contract a type of forward contract?
It is September 10 and Mr. James is making final estimates of this year’s wheat crop. His production is turning out to be much better than anticipated. This causes concern because if his production is better than expected, other farmers must be experiencing the same situation. The current spot price is $2.25 per bushel, and the October wheat futures (5,000 bushels per contract) price is $2.52 per bushel. At the current spot price, Mr James would just break even with his anticipated 60,000 bushels. His wheat will not be ready until October. a) What is the essential feature of a forward contract that makes a futures contract a type of forward contract?
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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It is September 10 and Mr. James is making final estimates of this year’s wheat crop. His production is turning out to be much better than anticipated. This causes concern because if his production is better than expected, other farmers must be experiencing the same situation. The current spot price is $2.25 per bushel, and the October wheat futures (5,000 bushels per contract) price is $2.52 per bushel. At the current spot price, Mr James would just break even with his anticipated 60,000 bushels. His wheat will not be ready until October.
a) What is the essential feature of a forward contract that makes a futures contract a type of forward contract?
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