Question
Suppose you enter into a short futures contract to sell December fine wool for AUD 32 per kilogram on the ASX as you are going
Suppose you enter into a short futures contract to sell December fine wool for AUD 32 per kilogram on the ASX as you are going to need to sell wool in the future and you are concerned about the price of wool falling. The size of the contract is 2,500 kilograms and you are likely to have 100,000 kilograms to sell when the shearing is done. In November, you have produced 110,000 kilograms of wool. The current spot price for wool is AUD 40 and the price of the fine wool futures is AUD 42 per kilogram. Determine your ending position and the price per kilogram that was received for the wool. Discuss the reasons why this hedge did not work perfectly
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