Assume, US risk-free rate: R (US) F = 1.5% p.a. Canadian risk-free rate: R (CA) F =
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Question:
Suppose you want to hedge the purchase of 11000 metric tons of soybeans on May 10, 2021. Futures contracts for soybeans (Ticker: ZS) are traded on the CME.
A) What is your trading strategy? Now assume you entered the contract chosen above at a price of 528
B) What is the gain/loss from hedging, if you close out the contract at a price of 522?
C) Assuming the basis will be between −20 and +20 when you close out your contract, what is your minimum total cost of purchasing the soybeans (including hedging profits/losses)? Graph the total cost C as a function of the value of the basis b..
D) Was the hedge successful, if the basis at the time of the sale is +3? Explain
Related Book For
Fundamentals of Investments Valuation and Management
ISBN: 978-0077283292
5th edition
Authors: Bradford D. Jordan, Thomas W. Miller
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