A clothing manufacturer is concerned that the price of cotton might rise and decides to hedge against this possibility.

a) Graph the clothing manufacturers current position. (If you are not submitting a photo of your answers, you can use the drawing tool in excel. Or simply describe to me what the graph would look like in writing)

b) Does your graph for part a represent a long or a short position?

c) What is measured on the

i) vertical; and

ii) horizontal axes of your graph

d) Graph the position the manufacturer should take to hedge (same rules as in part a) e) Does your graph for part d represent a long or a short position?

f) How would the clothing manufacturers futures account be marked to market if the contract was for 20,000 tons at a price of $0.72/ton and cotton futures closed the next day at $0.75/ton?