Suppose that after graduation, you take a job with an Oklahoma oil company. Youboss indicates that he expects November 2020 production to be 7,000 bbl and hwould like you to manage the company's price risk.The current cash price is $42.06/bbl and the December 2020 WTI futures price$42.75/bbl. The contract size for WTI crude is 1,000 bbl. You hedge the entireexpected production in the futures market.In November 2020, the cash price rises to $44.28/bbl and the December 2020futures price rises to $44.35/bu.Assume transaction fees of $15 per roundtrip per futures contract and a hedge rof 1.0 when answering the questions below. Round to the nearest whole numbercontracts.Question 1Did you first go long or short futures to initiate your hedge?

For hedging, if we go long that means we have got the right to buy the underlying asset at…

Answered: Suppose that after graduation, you take…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose that you enter into a short futures contract to sell July silver for $17.20 per ounce. The size of the contract is 5,000 ounces. The initial margin is $4,000, and the maintenance margin is $3,000.What change in the futures price will lead to a margin call?What happens if you do not meet the margin call?
The futures price of gold is $800. Futures contracts are for 100 ounces of gold, and the margin requirement is $4,000 a contract. The maintenance market requirement is $1,200. You expect the price of gold to rise and enter into a contract to buy gold. How much must you initially remit? Round your answer to the nearest dollar. $ If the futures price of gold rises to $855, what is the profit and return on your position? Round your answer for profit to the nearest dollar and for return to the nearest whole number. Profit: $ Return: % If the futures price of gold declines to $784, what is the loss on the position? Round your answer to the nearest dollar. Enter the answer as a positive value. $ If the futures price declines to $756, what must you do? Round your answer to the nearest dollar. Enter the answer as a positive value. The investor will have to $ to restore the initial $4,000 margin. If the futures price continues to decline to $740, how much do you have in your…
Suppose for simplicity that the price of frozen concentrated orange juice is currently at $1000 per 10-pound contract and an investor who holds 10 pounds of FCOJ wishes to temporarily hedge her exposure to market risk. Assume that the cost of storing 10 pounds of FCOJ comes to $20 per year, and, for simplicity, all costs are paid at year-end and the risk-free interest rate is 1%. (a) Calculate the appropriate Futures price for a 10-pound FCOJ contract using Spot-Futures Parity. (b) Assume that the futures price for year-end delivery of the FCOJ contract is $1,010 (the parity is violated). Show how an investor can make arbitrage profits.
You have decided to purchase 25 oil futures contracts at a settle price of $55 per barrel. Each futures contract has a standard size of 1,000 barrels and an initial margin requirement of $5,500. What is the leverage factor associated with these contracts? If oil rises to $56.25 per barrel, what is the total percentage return on your futures position? What is the total percentage return on your futures position if oil falls to $54 per barrel?
Mogul oil company will sell 6000 barrels of oil in 11 months. Suppose Mogul hedges the risk by selling futures on 6000 barrels of oil. The current oil futures price is $24.25 dollars per barrel. If in 11 months the spot price of oil is $22.75 and the futures price is $25.75 per barrel, what is Mogul's effective price of oil per barrel? 27.25 O24.25 25.25 21.25 22.75
Suppose that March oil futures have the price of $65/barrel, and the size of the contract is 1,000 barrels. When the contract matures in March, what will be the profit of a single long futures contract if the spot price is $68.50/barrel? Only typed Answer and give Answer fast
A company expects to buy 1 million barrels of West Texas Intermediate crude oil in one year. The annualized volatility of the price of a barrel of WTI is calculated as 18%. The company chooses to hedge using futures contract on Brent Crude. The futures contract is for 100,000 barrels. The annualized volatility of the Brent futures is 20% and the correlation coefficient between WTI crude oil and Brent futures is 0.89. To hedge its exposure and minimize the resulting variance, how many futures contracts should the company buy/sell? Select one: a. Buy 8 futures contract b. Sell 8 futures contract c. Buy 9 futures contract d. Sell 9 futures contract
An investor enters into a long oil futures contract when the futures price is $18.0 per barrel. The contract size if 100 barrels of oil. How much does the investor gain or lose if the oil price at the end of the contract equals $16.75?
The contract size for platinum futures is 50 troy ounces. Suppose you need 450 troy ounces of platinum and the current futures price is $820 per ounce. How many contracts do you need to purchase? How much will you pay for your platinum? What is your dollar profit if platinum sells for $870 a troy ounce when the futures contract expires? What if the price is $770 at expiration?
June 2021 Mexican peso futures contract has a price of $0.05197 per MXN. You believe the spot price in June will be $0.05831 per MXN. MXN500,000 is the contract size of one MXN contract. Required: What speculative position would you enter into to attempt to profit from your beliefs? Calculate your anticipated profits, assuming you take a position in three contracts. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes?
Suppose that the current spot price of corn is $720 per bushel. The one year risk-free rate is 6% per annum. The futures price for delivery of one bushel of corn in one year’s time is $792 per bushel. Assume that net costs (storage costs minus convenience yield) are $15 per bushel (over the next one year). Is the futures contract correctly priced? If not, what is the theoretically correct price for the futures contract and how could you take advantage of any mispricing? Please show full steps and explain.
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