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Suppose that you are a manager of a company that uses wheat to make cereal. a) Assume that it is currently September, and you intend
Suppose that you are a manager of a company that uses wheat to make cereal. a) Assume that it is currently September, and you intend to buy 15,000 bushels of wheat in November. The current spot market price of wheat is $2.50 per bushel. You want to hedge your risk of price fluctuations in the wheat market. The closest settlement date of wheat futures on the Chicago Board of Trade is December and the current December futures price of wheat is $2.75 per bushel. i. Should you buy or sell wheat futures? ii. Will your position be short or long in the futures market? iii. If each wheat futures contract is for 5,000 bushels, how many contracts will you buy or sell? iv. How much will you spend or receive in buying or selling futures contracts
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