Question: A farmer fearing of falling barley prices can use wheat futures to hedge.The two grainshave a0.7correlation.Barleyprice changes have a standard deviation of 0.3and wheat price

A farmer fearing of falling barley prices can use wheat futures to hedge.The two grainshave a0.7correlation.Barleyprice changes have a standard deviation of 0.3and wheat price changes have a standard deviation of 0.2.

Barely harvest is expected in August.The farmer should use the__________?(March/June/September/December)wheatcontract.

The sensitivity (beta)of barely price changes to wheat price movements is_______ ?(round to two decimals).

In August,the farmer received $213,500for his barley harvest.The basis has narrowed from $23,000at the time the hedge was initiatedto $14,000by the time the hedge was closed in August.The effective amount received by the farmer was__________ ?

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