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An Avocado farmer is thinking about hedging his farm produce in the derivatives market. He has heard of but unfamiliar with forwards and futures
An Avocado farmer is thinking about hedging his farm produce in the derivatives market. He has heard of but unfamiliar with forwards and futures contracts. Please advise on how he could set up a hedge highlighting the suitability of forwards and futures. (4 marks) The no-arbitrage price of a one-year Euro currency forward contract is USD 1.35 per Euro while the spot rate is USD 1.3 per Euro. The Euro rate is 4% and USD rate is 8%. Suppose the available quote on this contract is USD 1.2 per Euro, demonstrate step by step the arbitrage strategy. (5 marks)
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To hedge his farm produce the avocado farmer can use forwards or futures contracts Both of these instruments allow the farmer to lock in a price for his produce in advance protecting him from price vo...
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Agribusiness Principles Of Management
Authors: David Van Fleet, Ella Van Fleet, George J. Seperich
1st Edition
1285952359, 1285947835, 9781285952352, 9781285947839
