Question
1. You own an independent organic chicken farm in Delaware that serves three of the state's higher-end restaurants. How will you hedge your operation to
1. You own an independent organic chicken farm in Delaware that serves three of the state's higher-end restaurants. How will you hedge your operation to lock in your profit for the year?
2. You are the manager of a company that obtained a variable-rate 10-year loan in 2019. At the time, the loan was based on a U.S. prime lending rate of 4.75% plus a 2% premium. With the current increase in inflation and crude oil prices, your company's CFO is concerned about the risk of an increase in the prime rate. What action could you take to mitigate that risk? Explain.
3. You want to capitalize on the current stock market uncertainty, so you decide to write call options on a series of Exchange Traded Funds (ETFs) with expiration dates in the next 6 months. You put up margin, but you don't currently own any of the ETFs outright a. Are you a hedger or speculator? b. What is your risk if the values of the ETFs rise? c. How does your level of risk change if you already own the ETFs?
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