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The following table presents several situations in which a trader intends to buy or sell an asset at some point in the future and uses
The following table presents several situations in which a trader intends to buy or sell an asset at some point in the future and uses futures contracts to hedge the price risk between now and then. The table lists the assets, the intended actions on the spot market, futures prices at which the hedges are initiated and liquidated, the number of futures contracts used, the size of each contract, the spot prices at which the assets are eventually boughtsold and the size of the asset itself. All prices are in dollars per unit of asset. The exact timing of the transactions is not critical. The only relevant fact is that the hedging position is opened now and closed at some point in the future simultaneously with the spot transaction For example, the first situation can be interpreted as the one where the trader plans to sell of silver, opens a position in futures contracts oz each at today hedge initiation and, sometime later, closes the position at oz hedge liquidation while simultaneously selling of silver on the spot market.
For each scenario in the table
identify the position the hedger should take long or short
identify the target price the hedger would expect to receivepay for the hedged commodity
calculate the hedge ratio used by the hedger calculate the effective net price received or paid for the asset at hedge liquidation
determine the basis at the initiation and closing of futures position
explain why the target price and the actual effective net price are different
Round your results to four decimal places
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