Refer to Table 25.2 in the text to answer this question. Suppose today is December 4, 2020, and your firm produces breakfast cereal and needs 180,000 bushels of corn in March 2021 for an upcoming promotion. You would like to lock in your costs today because you are concerned that corn prices might go up between now and March.

a. How could you use corn futures contracts to hedge your risk exposure? What price would you effectively be locking in based on the closing price of the day?

b. Suppose corn prices are $4.53 per bushel in March. What is the profit or loss on your futures position? Explain how your futures position has eliminated your exposure to price risk in the corn market.

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Futures Contracts Metal & Petroleum Futures Contract Open High hilo Low Copper-High (CMX) 25,000 lbs:$perlb 3.4800 3.5055 Dec 3.4580 3.4695 March 21 3.4935 3.5230 A Gold (CMX)-100 troy oz. $ pertroy oz Doc 1829.20 1842.00 1830.50 1844.00 Jan 21 Feb Apri June Aug 1833.90 1847.40 1837.00 1850.70 1839.50 1852.90 1843.60 1854.40 Palladium (NYM)-50 troy oz:$pertroy oz 2360.00 2360.00 Dec 2225.10 March 21 2417.60 2431.60 2228.00 Platinum (NYM)-50 troy oz: 5per troy oz. Doc Jan 21 1020.20 1042.10 1005.00 Silver (CMX)-5,000 troy oz. $pertroy oz Dec 24.100 24.340 23.935 23.850 Jan Feb March Jan Feb 45.42 46.13 45.46 46.08 13612 1.3984 1.3721 1.4049 Jan Feb March Apri May Oct March 21 24.220 24420 Crude Oil, Light Sweet (NYM)-1000 bbls.Sporbbl 44.99 45.84 45.14 45.98 45.24 46.07 1.2376 1.2664 1.2447 1.2749 1825.30 15,718 2,428 1824.00 1838.40 1826.70 1841.10 10.90 396,152 1830.50 1844.70 10.80 69,763 1832.90 1847.10 10.80 31,294 1836.10 1849.00 10.60 8,469 - 2760 2768 2.756 2769 2.706 2711 2637 2644 44.66 44.84 44.98 2636 2.649 2761 2,792 Apri 45.07 June 45.06 Dec 44.86 45.18 44.46 NY Harbor ULSD (NYM)-42000 gal: $ per gal Jan 13541 1.3933 Feb 13633 Natural Gas (NYM)-10,000 MMBtu. Sper 2.484 2.486 2.441 2.393 Open Settle Chg Interest 3.4790 0.0040 4,633 3.4905 0.0015 167,647 1.2239 12357 1836.80 11.10 10.80 2.405 2.560 2302.10 -95.30 102 2317.90 -90.30 9,561 Gasoline-NY RBOB (NYMD-42000 gal:Spergal 1037.00 26.60 1038.60 26.50 24.087 0.062 3,337 24.137 0.057 127,183 45.64 0.36 377,052 45.79 45.91 1 48,031 45.96 45.93 45.00 0.35 205,147 0.34 192,213 0.32 97,163 0.29 214,184 0.01 282,937 0271 110,717 1.3999 0246 49,764 1.2617 0218 125,665 1.2705 0191 46,848 MMBtu 2.507 -273 298,896 2.515 -263 96,590 2476 247 195,204 2.434 -223 86,784 2.449 -210 54,769 2.614 -184 92,144