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Folgers imports coffee from the U.S. and needs 3 lot of coffee in May 2018. It is now July 2017 and the spot price for
Folgers imports coffee from the U.S. and needs 3 lot of coffee in May 2018. It is now July 2017 and the spot price for coffee is $101 cents per pound. The May 2018 futures price on the exchange is trading at $117 cents per pound. Fast forward to late April 2018, before the expiration of the May 2018 contract. The May 2018 contract is trading at $60 cents per pound. Folgers should? a) Sell a May contract at $117, buy it before expiration at $60, at which point they are free to buy their coffee for $60, netting $77 b) Buy a May contract at $117, sell it before expiration at$117, at which point they are free to buy their coffee for $60, netting $60 as a total spend c) Sell a May contract at $126, buy it back before expiration at $131, at which point they are free to sell their coffee for $110, netting $131 d) Buy a May contract at $117, sell it back before expiration at $60, at which paint they are free to buy their coffee for $60, netting $117 Based on the above, how much would Folgers lose on the future trade alone? a) $67 cents per pound b) $57 cents per pound c) $117 cents per pound d) $60 cents per pound Based on question 3, had Folgers not hedged their coffee, and " ", how much more would they have made compared to what they made by hedging their coffee with the exchange? a) $67 cents per pound
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