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2. You have a financial consultation company and a farmer from Egypt needs your help to design a strategy that help him hedge his
2. You have a financial consultation company and a farmer from Egypt needs your help to design a strategy that help him hedge his wheat production. He expects this year's harvest will produce approximately 15,000 bushels of wheat, which he will collect in September 2020. He needs your help to completely hedge his production using CME futures contracts. The following are the prices for different futures contracts: Month Aug 2020 Oct 2020 Dec 2020 Last Price 508 cents 524 cents 545 cents a. What position should he take? If each wheat futures contract includes 5,000 bushels, how many contracts he should enter to hedge his harvest? b. Which futures contract should he choose? c. The initial margin is $4,000 and the maintenance margin is $2,500. What price would lead to a margin call? d. When could he withdraw $1,500 from the margin account?
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