What is the net selling price from hedging using the PUT?
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After collecting basis data, a canola grower feels that 775 dollars per tonne is a realistic forward cash price for the fall’s crop since November canola futures are trading at 800 dollars per tonne. To hedge, the producer purchases an at-the-money PUT for 20 dollars tonne on May 19th.
While the hedge was in place, canola producers in Europe experienced crop failures and consumers in China began to import large quantities of canola produced in Canada. By October 15th, November canola futures had risen to 825 dollars per tonne. However, because of increased local production, the basis in the grower’s region weakened by 5 dollars tonne. On October 15th the grower sold his canola in the cash market.
Use T-accounts to answer the following:
1. What is the net selling price from hedging using the PUT?
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- After collecting basis data, a canola grower feels that 775 dollars per tonne is a realistic forward cash price for the fall’s crop since November canola futures are trading at 800 dollars per tonne. To hedge, the producer purchases an at-the-money PUT for 20 dollars tonne on May 19th. While the hedge was in place, canola producers in Europe experienced crop failures and consumers in China began to import large quantities of canola produced in Canada. By October 15th, November canola futures had risen to 825 dollars per tonne. However, because of increased local production, the basis in the grower’s region weakened by 5 dollars tonne. On October 15th the grower sold his canola in the cash market. Use T-accounts to answer the following: a. What is the net selling price from hedging using the PUT? b. What price would the producer have received if he had hedged using futures?Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S.dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $1.39/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $1.44/S$. He is considering trading options to profit and has the following options on the Singapore dollar to choose from Option choices on the Singapore dollar: Strike price (US$/Singapore dollar) Premium (US$/Singapore dollar) Call on S$ $1.371 $0.047 Put on S$ $1.37 $0.006 Samuel decides to buy call options in Singapore dollars. What will be Samuel's profit/loss if the ending spot rate is $1.286/S$ in 90 days? Keep all decimal places.Samuel works for Peregrine Investments Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $1.39/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $1.44/S$. He is considering trading options to profit and has the following options on the Singapore dollar to choose from: Option choices on the Singapore dollar: Call on S$ Put on S$ Strike price (US$/Singapore dollar) $1.35 $1.45 Premium (US$/Singapore dollar) $0.047 $0.065 Samuel decides to sell put options on Singapore dollars. What is Samuel's break-even spot rate at maturity?
- A bank customer will be going to London in June to purchase £100,000 in new inventory. The current spot and futures exchange rates are as follows: Exchange Rates dollars/pound Period Spot March June September December Rate 1.5342 1.6212 1.6901 1.7549 1.8416 The customer enters into a position in June futures to fully hedge her position. When June arrives, the actual exchange rate is $1.735 per pound. How much did she save? $ (Round your response to the nearest whole number.)An Airline has been buying jet fuel. The company wishes to enter into futures market to buy jet fuel. It has been observed that the correlation coefficient between the Kenya shillings and the USA dollar was -0.32. It was also known that risk of Kenya shillings and USA dollar were 0.06 and 0.04, respectively. In the future markets Jet fuel is sold in units of 1,000 barrows. The over ll demand of jet fuel by the airline was 330,000000 barrows of jet fuel. Required: (a) Compute and Comment of the Hedge ratio (b) Compute the Number of lot of jet fuel barrows would be hedged againstCanuck Oil Corporation is a Canadian crude oil producer. Today is July 15. Canuck’s estimated oil production level in three months’ time will be 100,000 barrels. The current spot price for crude oil is US$90.29 per barrel. Between January 15 and now, crude oil prices have fluctuated from a high of $110.82 to a low of $90.56. Due to the unstable nature of crude oil prices, Canuck Oil’s financial manager, Mr. Petro Stark would like to hedge the crude price risk using crude oil futures contracts. Petro found the following information on futures contracts expiring in September, October, and November: Delivery month Last Change Prior settlement Open High Low Volume September 90.79 –0.58 91.37 91.24 91.44 89.76 9067 October 92.18 –0.48 92.66 92.89 95.22 89.30 5229 November 90.13 –0.35 90.48 90.22 90.55 89.08 1685 Contract size: 1,000 barrels Contract currency: US dollar September expiry: September 16 October…
- A refinery has 250 tons of CPO on hand. This will be held over the following three months. He aims to hedge against a drop in CPO prices, which might result in losses since his production price is linked to CPO prices. The following information is available to him. Current inventory = 250 tons Spot price = $31100 per ton Interest rate = 6% per year Annual storage cost = $ 44 per ton (4% per annum) 3-month CPO futures = $ 1126.53 per ton a. How can the refiner protect oneself from declining CPO prices by using the CPO futures contract?? b. Demonstrate that the hedging approach will "lock-in" the value of his inventory in two potential CPO pricing situations in 90 days, as follows: i. Situation 1: Assume the CPO price drops by 20%. ($ 880 per ton) ii. Situation 2: Assume the CPO price increased by 20%. ($1,320 per tonSamuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $1.39/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $1.44/S$. He is considering trading options to profit and has the following options on the Singapore dollar to choose from: Option choices on the Singapore dollar: Strike price (US$/Singapore dollar) Premium (US$/Singapore dollar) Call on S$ $1.36 $0.077 Put on S$ $1.37 $0.006 Samuel decides to buy call options in Singapore dollars. What is Samuel's Break-Even spot rate at maturity? Keep the sign and all three decimal places.A U.S. investor purchases a 30-day Euro-commercial paper with a par value of 10,000,000 Brazilian reals for a price of 9,970,000 Brazilian reals. If the real is worth $0.28, the spot rate is anticipated to be $0.288900 per real at the end of maturity, and Investor holds the Euro- commercial paper until then, assuming a 360 day year, the effective yield is: Please show work
- An oil producer expects to have 8,000 barrels of oil to sell in 10 months. How can the producer use forward contracts to create a perfect hedge if each forward contract is written on 1,000 oil barrels and matures in 10 months? Assume the forward price for each barrel of oil today for delivery in 10 months is $80, the spot price of a barrel of oil today is $79 dollars and the spot price of a barrel of oil in 10 months is $82 dollars. What net price does the oil producer receive for each barrel of oil in 10 months?Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $1.39/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $1.44/S$. He is considering trading options to profit and has the following options on the Singapore dollar to choose from Option choices on the Singapore dollar: Call on S$ Put on S$ Strike price (US$/Singapore dollar) $1.300 $1.37 Premium (US$/Singapore dollar) $0.047 $0.006 Samuel decides to buy call options in Singapore dollars. What will be Samuel's profit/loss if the ending spot rate is $1.377/S$ in 90 days? Keep all decimal places.You are a buyer for a wheat importer based in Mexico. You estimate your buying basis for wheat FOB the Gulf of Mexico (i.e., loaded onto a ship) will be 68 cents over in May and June ($0.68). July wheat futures are trading at $5.64 per bushel, and September futures are trading at $5.66 per bushel. What approximate purchase price per bushel (FOB the Gulf) can you lock-in for wheat by hedging with the purchase of futures? Assume 1 cent per bushel brokerage fees. a) 6.35 b) 6.31 c) 6.33 d) 6.34
