You are a coffee dealer anticipating the purchase of 78,000 pounds of coffee in three months. You are concerned that the price of coffee will rise, so you take a long position in coffee futures. Each contract covers 35,500 pounds, and so, rounding to the nearest contract, you decide to go long in two contracts. The futures price at the time you initiate your hedge is 55.00 cents per pound. Three months later, the actual spot price of coffee turns out to be 57.65 cents per pound and the futures price is 58.10 cents per pound. Determine the effective price at which you purchased your coffee. Do not round intermediate calculations. Round your answer to two decimal places.

A. ___ cents per pound?

How do you account for the difference in amounts for the spot and hedge positions?

B. The difference in price between spot and future is probably due to (delivery, currency depreciation, or inflation?) costs.