Question
A tea company wants to lock in the cost of tea for the next six months. The current spot price of tea is $2.50 per
A tea company wants to lock in the cost of tea for the next six months. The current spot price of tea is $2.50 per pound, and the shopkeeper expects the price to increase by 10% over the next six months. The shopkeeper enters into a six-month futures contract for 10,000 pounds of Tea with a futures price of $2.75 per pound. The margin requirement is 20% of the contract value. Assume that the shopkeeper can meet the margin requirement. What is the total cost of the tea for the shopkeeper after six months, assuming that the spot price of tea has increased by 10% as expected?
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