Question
For this question ignore exchange rate issues, commissions and brokerage fees, storage fees, margins and margin calls, and any financing costs. Suppose a person is
For this question ignore exchange rate issues, commissions and brokerage fees, storage fees, margins and margin calls, and any financing costs. Suppose a person is a canola trader looking to hedge the risk they face in the cash market. At the beginning of January 2021 they went long in the cash market and have 1,000 tons of canola in storage. The cash price of canola was $555 per ton when they went long in the cash market. At the same time, they went short for 50 futures contracts for August 2021 canola at a price of $575.5 per ton per contract. Each contract involves 20 tons.
Fast forward to the end of July 2021, and suppose the cash price of canola is $525.5 per ton, while August 2021 canola futures is trading at $546 per ton.
What is their profit/loss from the canola cash and futures transactions? Ignore commissions and brokerage fees.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started