You are working for a company that processes beef and will take delivery of 200,000 pounds of cattle in August. You would like to lock in your costs today because you are concerned about an increase in cattle prices. Go to the Chicago Mercantile Exchange (CME) at www.cme.com, follow the “Products” link, the “Agricultural Commodities” link, and the “Contact Specs” link. How many futures contracts will you need to hedge your exposure? How will you use these contracts? Go back to the CME home page, follow the “Prices” link, the “10-Minute Futures Updates” link, the “Agricultural Commodity Futures” and the “Live Cattle Futures” link. What price are you effectively locking in if you trade at the last price? Suppose cattle prices increase 5 percent before the expiration. What is your profit or loss on the futures position? What if prices decrease by 5 percent? Explain how your futures position has eliminated your exposure to price risk in the live cattle market.