Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I export coffee from Colombia. Starbucks, the importer, is my client. Today, I call Starbucks and ask if they would like to purchase 1 8

I export coffee from Colombia. Starbucks, the importer, is my client. Today, I call Starbucks and ask if they would like to purchase 187,500 pounds of coffee for May 2024 delivery. Starbucks agrees and we settle on a price of May plus 4(May +4). Today, the May coffee futures contract is priced at 89.75. Fast forward into the future where for purposes of this scenario, assume that there are two days left in the May contract trading period and the price of the May 2024 coffee futures contract is now 82.30. I call Starbucks, and we agree to settle our business based on the new market price of 82.30(not taking into consideration the 4-cent premium). Assume I did everything by the book in terms of my hedging strategy, based on what we learned in class.
How much am I left with in U.S. dollars as a combination of my gain or loss on the futures contract side of the equation and the amount of money that I collected from Starbucks?
A.
$161,812.50 as a positive, dollar amount.
B.
$161,812.50 as a negative, dollar amount.
C.
$175,781.30 as a positive, dollar amount.
D.
$175,781.30 as a negative, dollar amount.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance Lessons From The Past And Effects On The Future

Authors: Miguel-Angel Galindo Martin

1st Edition

1629481491, 978-1629481494

More Books

Students also viewed these Finance questions

Question

What is productivity? What does it measure?

Answered: 1 week ago