Question

Suppose a copper fabricator knows it will need 100,000 pounds of copper on May 15. The...

Suppose a copper fabricator knows it will need 100,000 pounds of copper on May 15. The futures price for May delivery is 320 cents per pound. The fabricator can hedge its position by taking a long position in four futures contracts traded by the CME Group and closing its position on May 15. Each contract is for the delivery of 25,000 pounds of copper. What is the net cost of the strategy if the spot price of copper on May 15 proves to be 330 cents per pound?

-please explain step by step

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Use of futures contracts to hedge cotton inventory—fair value hedge On December 1, 2014, a cotton...
Use of futures contracts to hedge cotton inventory—fair value hedge On December 1, 2014, a cotton wholesaler purchases 7 million pounds of cotton inventory at an average cost of 75 cents per pound. To protect the inventory from a possible decline in cotton prices, the company sells cotton futures contracts for 7 million pounds at 66 cents a pound for delivery on June 1, 2015, to coincide with its expected physical sale of its cotton inventory. The company designates the...
You are a futures trader at Kantar Trading Company, New York. You have the following information...
You are a futures trader at Kantar Trading Company, New York. You have the following information on Lean Hog. The standard deviation of monthly changes in the spot price of Lean Hog Futures is (in cents per pound) 5. The standard deviation of monthly changes in the futures price of Lean Hog Futures the closest contract is 8. The correlation between the futures price changes and the spot price changes is 0.8. It is now December 17, 2019. Your client,...
Cranked Coffee Company's cost of producing copper is about $3.95 per pound. The current market price...
Cranked Coffee Company's cost of producing copper is about $3.95 per pound. The current market price for copper is $4.74 per pound. The six-month futures price for copper is $4.94 per pound. At this selling price, the company can maintain its earnings growth. The company expects to produce 1,250,000 pounds of copper in this six months. (Note: Copper futures are traded at a standard size of 250,000 pounds.) If the company does not hedge the copper it produces, it can...
A food company is planning to purchase 5,000,000 pounds of beef in six months. The company...
A food company is planning to purchase 5,000,000 pounds of beef in six months. The company is concerned about changes in the price of beef. Your assignment is to construct a futures contract hedge to protect the company’s cost. The current wholesale price of beef is 106 Cents per pound. The livestock futures contracts are for 40,000 pounds. The futures contract quoted price is Cents per pound. The coefficient of correlation between livestock and beef is 0.93. The standard deviation...
Today is 1 May. Suppose you bought an American put option on October-maturing live cattle future...
Today is 1 May. Suppose you bought an American put option on October-maturing live cattle future contract with a strike price of 60 cents per pound. Each contract is for the delivery of 50000 pounds. A).Please illustrate what happens if you exercise this option on 31 May when the October- maturing live cattle futures price is 50 cents per pound. B).After exercising the put option, you decide to hold the underlying futures contract to the expiry and you closed out...
A food company is planning to purchase 5,000,000 pounds of beef in six months. The company...
A food company is planning to purchase 5,000,000 pounds of beef in six months. The company is concerned about changes in the price of beef. Your assignment is to construct a futures contract hedge to protect the company’s cost. The current wholesale price of beef is 106 Cents per pound. The livestock futures contracts are for 40,000 pounds. The futures contract quoted price is Cents per pound. The coefficient of correlation between livestock and beef is 0.93. The standard deviation...
A food company is planning to purchase 5,000,000 pounds of beef in six months. The company...
A food company is planning to purchase 5,000,000 pounds of beef in six months. The company is concerned about changes in the price of beef. Your assignment is to construct a futures contract hedge to protect the company’s cost. The current wholesale price of beef is 106 Cents per pound. The livestock futures contracts are for 40,000 pounds. The futures contract quoted price is Cents per pound. The coefficient of correlation between livestock and beef is 0.93. The standard deviation...
One orange juice futures contract is on 15 000 pounds of frozen concentrate. The current price...
One orange juice futures contract is on 15 000 pounds of frozen concentrate. The current price is 1.1505 $/pound and the risk-free continuously compounded interest rate is 2% per year. You know that the storage cost amounts to 1.5% per year and the convenience yield is 2.4% per year (both cont. comp.). You enter into a short position on 100 contracts for delivery in 1.5 years. The initial margin is set at $40 000 so you deposit this amount into...
“Today” is late March. Your company, Mesquite Bush Refining Inc., produces 42,000,000 gallons of ultra low...
“Today” is late March. Your company, Mesquite Bush Refining Inc., produces 42,000,000 gallons of ultra low sulfur diesel (ULSD) fuel at the end of each month. You have the following market data. Spot price of ULSD diesel fuel: S0 = $1.79/gal. Futures price of June NYMEX New York Harbor ULSD futures: F0 = $2.10/gal. Size of the underlying for this futures contract: 42,000 gallons Trading in a NYMEX New York Harbor ULSD contract ceases shortly before the contract month begins....
1. The bank you are working for needs to borrow $100 million on May 15 th...
1. The bank you are working for needs to borrow $100 million on May 15 th by selling 90-day Eurodollar deposits. Your bank’s Treasury desk is looking into derivatives contracts for hedging the bank’s risk and is interested in the June Eurodollar futures contract with a current price of 93.25 and a contract size of $1 million. a. Explain the risk faced by your bank in the spot market and determine the futures position that the Treasury desk should take...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT