Question 1 : (6 marks)

You grow wheat and figure that you will have 60,000 bushels to sell in the next month.

a. What kind of risks you face for this ? How do you hedge this risk?

b. Futures contracts are for 5,000 bushels and are quoted at 7.50 per bushel. If you want to hedge the risk you face, what should you do?

c. If the actual price at the time contract matures is $5 or $10 a bushel, what profit or loss you have due to hedging ?