see photo 2

Problem 19-40 Derivatives: Identifying a Hedge Nanesite Company is still new at using derivatives to hedge business risk. No derivative agreements in an at ents in an attempt to hedoe five specific items The derivatives, and associated briefly described here: vatives to hedge business risk. Kanesville has entered into five es contract. If the US dollar value of 500,000 is higher than $300,000 on July 31, Kanesville erence if the US dollar value is less than $300.000. Kanesville receives the aerence, This futures contract is intended to hedge a 500,000 account payable due to be paid on July 5. (b) Copper forward contract. If the price of copper is more than $1.16 per pour must pay the difference (multiplied by 100.000 pounds); if the price is less than $1.Tu, Maresme receives the difference. This forward contract is intended to hedge Kanesvilles expected purchases of copper (as a raw material) for the month of August. an 590,000 on Julys ille must pay the hase of some 796 Kanesile tece than 12%, Kanesville 0,000 variabletten c) Japanese yen futures contract. If the US dollar value of 10 million is higher than $90 Kanesville receives the difference: if the US dollar value is less than 0.000, Kanesville difference. This futures contract is intended to hedge Kanesville's expected purchase of ment from a Japanese company on July 15 for 5 million (d) Interest rate swap. If the interest rate on March 31 of next year is more than 12%, Kanpur the difference on a principal amount of $2,000,000); if the interest rate is less than 1296 must pay the difference. This interest rate swap is intended to hedge a $2,000,000 variable The loan is expected to be fully repaid this year on May 10 le) Call option on Williams Company stock. If the price of a share of Williams Company stock is $60 on September 24, Kanesville receives the difference multiplied by 25,000 shares): if the of the stock is less than $60, the option is worthless and will be allowed to expire. This calle intended to hedge an investment in 25,000 shares of Williams Company stock. Instructions: For each of these five pairs (derivative and associated item), state whether the derives serves as an effective hedge. Explain your answer. Company stock is more than 25.000 shares: if the price