On SEP 4, 2014 A firm has a contract to purchase 200,000 bushels of wheat on the first trading day of each of the following months: FEB 2015 and AUG 2015. The firm decides to hedge these purchases with CBT corn futures. One CBT corn futures is for 5,000 bushels of corn. An analysis of price changes over a 2 month interval yields: (S) = 0.025; (F) =0.033; and (S; F) = 0.693.

The following table indicates the actual spot and futures prices in US$ per bushel. DATE September 2014 February 2015 August 2015 SPOT PRICE 10.880 10.760 10.600 FUTURES PRICE March 2015 10.892 10.764 September 2015 10.912 10.808 10.592 Required Calculate the average price for both the unhedged and hedged positions and the resulting savings or losses (14 marks)