.111 T-Mobile Wi-Fi . 7:40 PM Problems-Futures . What are reasons that you might choose between a Futures or Forward contract to hedge a position? What is the difference between hedging and 3 You own a home building company and want to protect against a rise in copper prices. Do you go long or short the copper futures contract? 4. You own a hog farm and want to protect against a drop in hog prices. Do you go long or short the hog futures s. You own a plastics company that uses crude oil. You are afraid of prices rising. Oil is currently $50 per barrel and a contract is 1000 barrels. Margin is 10%. You need 10,000 barrels in 3-months and the futures price is $52. Do you go long or short the futures? How many contracts do you buy or sell? How much cash must you put up? What is your net price for oil if prices in 3 months rise to $55? What if prices fall to S45? What is your profit/loss on the futures contracts? 6. You own an orange grove in Florida and believe that weather will be great and there will be no hurricanes. OJ prices are currently $1.20 per pound. Do you think prices will rise or fal1? Do you want to go long or short the OJ futures? Futures are15,000 pounds per contract and the current futures price for September is 125 cents. You believe your grove will produce 30,000 pounds. Margin is 5%. How many contracts do you need? What is the cash required? What happens if you are right and OJ drops to 115 cents? What happens if there is a big storm in California and OJ prices rise to 140 cents? What happens if there is a hurricane in Florida that wipes out half your crop and prices rise to 140 cents