How can using the financial futures markets for interest rates and foreign exchange help financial managers through hedging? Briefly explain, and give one example of each.
Answer to relevant QuestionsExplain what hedging is. You purchase a 5,000-bushel contract for corn at $1.90 per bushel ($9,500 total). The initial margin requirement is 7 percent. The price goes up to $1.98 in one month. What is your percentage profit and the annualized gain? The Health Food Corporation anticipates the need to purchase 80,000 bushels of soybeans in six months to use in their products. The current cash price for soybeans is $5.50 a bushel. A six-month futures contract for soybeans ...Why does a down market put tremendous pressure on a speculator if he or she is the purchaser of a contract in anticipation of a market increase? Relate this answer directly to margin. Garner Money Management, Inc., is in charge of a $50 million portfolio. Its beta is equal to the market. To hedge its position, it sells (writes) 200 December 1100 call option contracts on the S&P 500 Stock Index as shown in ...
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