Question
4. On February 1st, Brazil Coffee Farms Inc. decides to hedge its upcoming sale of three hundred pounds of coffee which will take place on
4. On February 1st, Brazil Coffee Farms Inc. decides to hedge its upcoming sale of three hundred pounds of coffee which will take place on March 1st. It uses a hedge ratio of 0.85. It does not use a tailing the hedge adjustment. Each futures contract is for delivery of 50 pounds of coffee. On February 1st the per-pound spot price of coffee is 1.30 and the futures price is 1.34. On March 1st the per-pound spot price of coffee is 1.25 and the futures price is 1.21. What is the effective sales price received by Brazil Coffee Farms Inc. on its coffee sale?
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