QUESTION ONE a) b) c) d) e) On March 1, the spot price of a commodity is $20 and the July futures price is $19. On June 1, the spot price is $24 and the July futures price 1s $23.50. A company entered into a futures contract, on March 1, to hedge the purchase of the commodity on June 1. It closed out its position on June 1. What is the effective price paid by the company for the commodity? (5 marks) On March 1, the spot price of a commodity is 3300 and the December futures price is $315. On November 1, the spot price of the same commodity is $280 and the December futures price is $281. A producer entered into a December futures contract, on March 1, to hedge the sale of the commodity on November 1. It closed out its position on November 1. What is the effective price received by the producer"? (5 marks) There are futures contracts available on jet fuel. An airline company has to buy 3 million gallons of jet fuel in three months. Suppose vou are in charge of this company's hedging activity. Would vou undertake a long hedge or a short hedge? Briefly explain. (5 marks) Suppose that the standard deviation of monthly changes in the price of commodity A is 2. The standard deviation of monthly changes in a futures price for a contract on commodity B {which is similar to commodity A) is 33. The correlation between the futures price and the spot commodity price is (L9, What hedge ratio should be used when hedging a one month exposure to the price of commodity A7 (5 marks) A company has a $36 million portfolio with a beta of 1.2. The S&P index is currently standing at 900, Futures contracts on 250 times the index can be traded. What trade is necessary to eliminate all systematic risk in the portfolio. (Indicate the number of contracts that should be traded and whether the position is long or short.)