Homework 4 Chapter 3 Name: 1. On October 1, an clevator who holds soybeans, fears its price decreased to reports of big crop in Brazil. He did the following calculation and trades in both the cash and futures markets on Octoberland May 10. Please fill in blanks in the table. Assume there is no basis risk and the basis did not change in the whole process Date Cash Futures $6.40 1-Oct Cost of Production $6.00 May Futures Expected Basis-$0.30 (A) What is the forward price? B What is the expected to main Sell May Futures @ 10-Mavl Sel Cash @ $5.70 Buy May Futures @ (C) What is futures price on May 10? (D) What is the gain or loss on futures market result? (E) What is the gain or loss on cash market result? (F) What is the realized price (or net selling price)? - - (G) What is the overall profit? $6.40 2 2. Long Hodge: A cattle producer bought the input from the market. The basis cualed-5.40, and did not change in the process Date Cash Futures 1-Feb Estimated Purchased Costs $3.001 Oct Futures Contract $3.25 Buy Oct Futures @ $3.25 Sell May Futures @ $3.65 (A) What is the forward price? (B) What is the expected profit margin? 1-Feb 10-Oct Buy Cash @ ? (C) What is cash price on Oct 10? (D) What is the gain or loss on futures market result? (E) What is the gain or loss on cash market result? (F) What is the realized price (or net buying price? (G) What is the overall profit? Homework 4 Chapter 3 Name: 1. On October 1, an clevator who holds soybeans, fears its price decreased to reports of big crop in Brazil. He did the following calculation and trades in both the cash and futures markets on Octoberland May 10. Please fill in blanks in the table. Assume there is no basis risk and the basis did not change in the whole process Date Cash Futures $6.40 1-Oct Cost of Production $6.00 May Futures Expected Basis-$0.30 (A) What is the forward price? B What is the expected to main Sell May Futures @ 10-Mavl Sel Cash @ $5.70 Buy May Futures @ (C) What is futures price on May 10? (D) What is the gain or loss on futures market result? (E) What is the gain or loss on cash market result? (F) What is the realized price (or net selling price)? - - (G) What is the overall profit? $6.40 2 2. Long Hodge: A cattle producer bought the input from the market. The basis cualed-5.40, and did not change in the process Date Cash Futures 1-Feb Estimated Purchased Costs $3.001 Oct Futures Contract $3.25 Buy Oct Futures @ $3.25 Sell May Futures @ $3.65 (A) What is the forward price? (B) What is the expected profit margin? 1-Feb 10-Oct Buy Cash @ ? (C) What is cash price on Oct 10? (D) What is the gain or loss on futures market result? (E) What is the gain or loss on cash market result? (F) What is the realized price (or net buying price? (G) What is the overall profit
