An organic Tofu manufacturer needs to purchase a 200,000 bushels of high-quality organic soybeans in 2...
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An organic Tofu manufacturer needs to purchase a 200,000 bushels of high-quality organic soybeans in 2 months. However, the futures market deals with low-quality soybeans (not organic). As regards, this organic Tofu manufacturer decides to use the low-quality soybeans for hedging. Using some historical data, we have found that the standard deviations and correlations as follows: Os = 0.0363 OF = 0.0422 and p = 0.982 Each soybean contract is traded by the CME group is on 5,000 bushels. What should be hedging strategy for this organic Tofu manufacturer to lock in a price? Would she have to short or long soybean futures contract? And how many number of contracts should she short/long? An organic Tofu manufacturer needs to purchase a 200,000 bushels of high-quality organic soybeans in 2 months. However, the futures market deals with low-quality soybeans (not organic). As regards, this organic Tofu manufacturer decides to use the low-quality soybeans for hedging. Using some historical data, we have found that the standard deviations and correlations as follows: Os = 0.0363 OF = 0.0422 and p = 0.982 Each soybean contract is traded by the CME group is on 5,000 bushels. What should be hedging strategy for this organic Tofu manufacturer to lock in a price? Would she have to short or long soybean futures contract? And how many number of contracts should she short/long?
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The question is about formulating a hedging strategy using futures contracts to manage the risk associated with purchasing a commodity in this case or... View the full answer
Related Book For
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
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