Futures Markets

4.a. In January, Julia purchased two May live cattle futures contracts. One contract is 40,000 lbs. of live cattle. It is currently March. In March, Julia can fulfill her contract obligations by

(a) purchasing two May live cattle futures contracts

(b) selling two May live cattle futures contracts

(c) delivering 80,000 lbs. of live cattle to a futures transaction point

(d) accepting delivery of 80,000 lbs of live cattle at a futures transaction point.

Write down the letter(s) of all answers that are correct.

4.b. Use the following table of prices to calculate the profits of a speculator who sells three November soybean futures contracts on May 12 and offsets those contracts on November 5. Show your work.

	May 12	Nov 5
November Soybean futures contract price (one contract=5000 bushels)	$6.23/bushel	$7.50/bushel
Soybean Spot Price	$7.15	$8.25

4.c. Finding that this speculator lost money, why might they have rationally chosen to offset their earlier sell contracts on November 5? This will guarantee a loss, so why not wait?

4.d. If the person in 4.b. was hedging (i.e., someone who was initially long in soybeans), how would this change their actions on Nov 5? Show how their profits would have changed, to contrast with the speculator in 4.b.