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1) A cereal farmer has a stock of wheat of 50 tonnes, and plans to sell...

1) A cereal farmer has a stock of wheat of 50 tonnes, and plans to sell them in a year. The spot price is € 100 / t, the 1-year interest rate is 1%, the cost of storing wheat is 0.5% of the value of the inventory, payable at maturity. What do you advise him to do wishes to hedge against fluctuations in the price of wheat, and if the price of wheat at one is € 100.5 / t? What is the “fair” price of wheat at one year?
2) A miller plans to buy in a 100 tonnes of wheat. The spot price is € 100 / t, the 1-year interest rate is 1%, the cost of storing wheat is 0.5% of the value of the inventory, payable at maturity. What do you advise him to do wish to hedge against fluctuations in the price of wheat, and if the price of wheat at one year is 102.5 € / t? What is the “fair” price of wheat at one year?
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