) Suppose that a corn farmer expects to sell 40,000 bushels of corn three months from now. Assume further that the management of a food-processing company plans to purchase 40,000 bushels of corn three months from now. Both the corn farmer and the management of the food- processing company want to lock in a price today. That is, each wants to eliminate the price risk associated with corn three months from now. The cash or spot price for corn is currently $2.80 per bushel. A corn futures contract is available with the following terms: the settlement date for the contract is five months from now, and 5,000 bushels of corn must be delivered. Notice that the settlement date is two months after the parties expect to lift their hedge. Because each contract is for 5,000 bushels of corn, eight corn futures contracts cover 40,000 bushels. The futures price for this futures contract is currently $3.19 per bushel. a. If the corn farmer seeks to lock in the price of corn to eliminate the risk of a decline in the price three months from now, will he place a long hedge or a short hedge? b. If the management of the food-processing company seeks to lock in the cost of corn to eliminate the risk of an increase in the price of corn three months from now, will it place a short hedge or long hedge? c. What is the basis at the time of the hedge? d. Suppose that when the hedge is lifted, the cash price declines to $2.15 and the futures contract price declines to $2.54. What has happened to the basis? What is the outcome for the corn farmer and the food-processing company? e. Suppose that the cash price of corn when the hedge is lifted increases to $4.06, and that the futures price increases to $4.45. What has happened to the basis? What is the outcome for the corn farmer and the food-processing company? f. Suppose that the cash price of corn decreases to $2.15 and the futures price decreases to $2.75. What has happened to the basis? What is the outcome for the corn farmer and the food- processing company?