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Assume that the forward price equals the futures price. Also, assume that there is no default risks in forward trading. Consider the following situation. McDonald's
Assume that the forward price equals the futures price. Also, assume that there is no default risks in forward trading. Consider the following situation. McDonald's wants to hedge the purchase of lean hog using either futures contract or forward contract. Is the company better off using a futures contract or a forward contract when the price of the lean hog first falls quickly and then increases back to its initial value during the life of the contract?
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