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It is currently September, and a flour manufacturer plans to purchase 10,000 bushels of wheat in December. At this time, wheat is selling in the
It is currently September, and a flour manufacturer plans to purchase 10,000 bushels of wheat in December. At this time, wheat is selling in the cash market for $5.50/bushel and a December wheat contract is trading at $3.50/bu. The manufacturer finds a price of $3.50/bushel acceptable, but want to protect itself against price risk, so the manufacturer executes a hedge using wheat futures contracts. In December, wheat is selling for $4.15/bu. in the local cash market and a December wheat contract is also trading at $4.15/bu. The manufacturer closes its position in the futures market and purchases wheat in the cash market. A) What type of hedge did the manufacturer use to protect against price risk? Futures Contracts B) What actions does the manufacturer take in the cash market and the futures market in September? Make sure to specify the action (1.e. buy or sell) and the price at which the action is taken. The manufacturer will C) What actions does the manufacturer take in the cash market and the futures market in December? Make sure to specify the action (i.e. buy or sell) and the price at which the action is taken. b) What is the manufacturer's net price across these cash and futures market transactions
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