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Steve needs to sell 5,000 kg of fine wool in November 2020. He believes that today's spot price of $13.70/kg is unusually low, and has
Steve needs to sell 5,000 kg of fine wool in November 2020. He believes that today's spot price of $13.70/kg is unusually low, and has incurred costs based on his assumption that the price will rise to $14.25/ kg by November. The following fine wool contracts are available on the futures market: Delivery Date Settlement Price June 2020 $13.75/kg September 2020 $14.15 /kg December 2020 $14.55 / kg Today is June 5th, and Steve decides to hedge his position using futures. Assume that he can enter futures contracts at the settlement price! Use the grid below to clearly specify: the action he should take today, ii) the action he should take in November if spot and December futures prices are $14.00 and $14.20 respectively, his effective (hedged) revenue per kilogram from selling fine wool in November. [Fine wool contract size is 2500 kg.) Date of activity Futures market activity Physical market activity ) June 5th 2020 MacBook Air [Fine wool contract size is 2500 kg.) Date of activity Futures market activity Physical market activity June 5th 2020 November December
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