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Excellent Corn Chips (ECC) is a large producer of tortilla chips. It anticipates buying 25 thousand bushels of corn in September. Suppose the SEP futures
Excellent Corn Chips (ECC) is a large producer of tortilla chips. It anticipates buying 25 thousand bushels of corn in September. Suppose the SEP futures contract price is $2.11 per bushel. The contract size is 5,000 bushels per contract.
a. What is ECCs risk? How can ECC hedge its risk?
b. What are the risks if ECC takes delivery of the futures contract?
c. If the September spot price is $3.15 per bushel, what is the net cash flow to ECC from its hedging strategy using SEP futures contracts?
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