Stan Dover is a coffee exporter who is concerned about recent news reports of a record coffee harvest in the current year from South America and its potential effects on future coffee prices. After seeking your advice, Stan has decided to undertake the following strategy to protect his current coffee holdings against an expected decrease in prices:

1. Sell 4 coffee futures contracts today (3 October 2014).

2. Buy back 4 coffee futures contracts on 30 December 2014 just prior to the expiry of the contract.

The relevant price information for coffee futures contracts are as follows:

Date Details Amount ($)

3 October 2014 1 Coffee futures contract (5 % deposit required) $40 000

30 Dec 2014 1 Coffee futures contact $38 500

Required: Determine whether Stan was successful in protecting against an expected decrease in the coffee price as evidenced by his approximate realised return calculated on:

a) a 3 monthly basis, and

b) an annual basis. (8 marks)

Use the table below, which is reproduced in your answer booklet, to write part of your answer to this question:

Date	Particulars	Total
3 October, 2014	Cash Flow from selling 4 Coffee Futures Contracts	$
	Less: Deposit Required (5%) per contract	$
	Net Cash Flow	$
30 December, 2014	Buy back 4 Coffee Future Contracts	$
3 January, 2015	Add: Deposit Returned	$
	Net Gain	$