Task (30 marks) Assume the date is June 1, 2023. You currently work for ABM Sugar Limited, which is responsible for marketing Australian raw sugar exports on behalf of Australian sugar millers and growers. You have been tasked with producing a risk management proposal in which you are required to develop an effective hedging strategy to assist ABM in managing its transaction exposures to price risk up until the due delivery date of a sugar tranche on August 2, 2023. Raw sugar is traded internationally on the basis of US dollar prices. The size of the tranche is 3,300,000 long tons of sugar (1 long ton = 2,240 pounds). The proposal you present includes a strategy of taking some positions (long or short) in ICE#16 futures contracts (International Continental Exchange (ICE) contract number 16) involving the whole consigned tranche in order to manage the firm's exposure to spot price volatility for raw sugar. In your proposal, you also need to mention that you expect the Australian dollar to appreciate against the US dollar over the next few months, which would therefore decrease the value of the consigned sugar in Australian dollar terms. Accordingly, you decide to simultaneously manage foreign currency risk over the hedging period by using foreign currency futures. You can consider the Australian dollar futures contract traded on CME (the product name is AD - AUSTRALIAN DOLLAR FUTURES) to hedge the currency risk. Your analysis should include the followings: Identify the risks faced by the firm. For each type of risk, provide comparisons between the following results in hindsight: (i) implications for using the spot market and not hedging; (ii) the implications for using futures contracts to hedge over the time period; and (iii) the implications for perfect hedge. Your analysis should show balances relating to an outstanding margin account in relation to changes in the prices over time. (Margin requirements are provided within the contract specifications and the maintenance margin may be assumed to be equal to the initial margin for simplicity). Your analysis should identify any instances whereby margin calls would be executed on ABM. You should discuss the challenges encountered in practice in reaching the hedging outcomes you have suggested. A useful resource regarding ICE futures contracts is available at the following online address https://www.theice.com/publicdocs/ICE_Sugar_Brochure.pdf Data and supplementary materials The contract specifications of ICE#16 futures contracts and the Australian dollar futures contracts are as follows: Contract specifications for ICE #16 futures contract (Details can be found at https://www.theice.com/products/914/Sugar-No-16-Futures)