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Problem 1

In the Chicago Board of Trades corn futures contract, the following delivery months are available: March, May, July, September, and December. State the contract that should be used for hedging when the expiration of the hedge is in

1. June
2. July
3. January

Problem 2

It is June 8. A company knows that it will need to purchase 30,000 barrels of crude oil sometime in November. The current October oil futures price is S55.00 per barrel and the current December oil futures price is S56 per barrel. The following table shows the market price of the crude oil futures traded in CME on June 8.

MONTHOPTIONSCHARTSLASTCHANGEPRIOR SETTLEOPENHIGHLOWVOLUMEUPDATEDOct 2021OCT 2020Show Price Chart--55.00---018:17:31 CT 8 June 2020 Dec 2021DEC 2020Show Price Chart--56.00---018:15:40 CT 8 June 2020

The following table shows the market price of the crude oil futures traded in CME on November 10.

MONTHOPTIONSCHARTSLASTCHANGEPRIOR SETTLEOPENHIGHDec 2021DEC 2020Show Price Chart--55.00---018:15:40 CT 8 June 2020

Suppose the spot price on November 10 is $54 per barrel and that is the time you decide to take oil position (one oil futures contract =1,000 barrels).

a. For hedging purpose, which futures contract should you use: October futures or December Futures?

b. What will be the net cost of oil per barrel if you take a long position in December oil futures contracts on November 27 at a futures price of $56?

[i]

[ii]