Question
In June 2011, a sheep farmer became concerned that by the time her 50,000 kg wool crop was ready for delivery in November 2011 that
In June 2011, a sheep farmer became concerned that by the time her 50,000 kg wool crop was ready for delivery in November 2011 that the price would fall from its current $10.50 per kg to less than her $9.60 per kg break-even price.One wool contract is for 2,500 kg, and June, September and December wool futures prices are $10.45, $9.90 and $10.20 respectively.Show how the farmer can 'lock in' a profit for her business by entering and subsequently reversing a futures market position, if in November, the spot and December futures prices fell to $9.50 per kg and $9.40 per kg respectively.
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