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You expect to sell $5 million worth of Corn in 8 months. You intend to hedge this risk with a Corn futures contract. a. What

You expect to sell $5 million worth of Corn in 8 months. You intend to hedge this risk with a Corn futures contract.

a. What futures contract position would you take? Explain how this position would offset your original exposure?

b. What is basis risk and how would it affect the effectiveness of your hedge? How would increase the effectiveness of your hedging strategy?

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