2. [15 points It is March 6. Options Inc. is a cocoa distributor in Canada. Tmagine Options Inc. has just entered into a contract with a chocolate processing firm in Ontario to sell 2,000 metric tons of cocoa, to be delivered on July 6, 2019. The sale price is agreed by both partics to bc based on the market price of cocoa on the day of delivery. Thc July cocoa futures is trading at USS 2,258 per metric ton with the expected adjusted basis of CNDS55.41 per metric ton under, the Canadian dollar is trading at USS0.74 per SCND. If Options Inc. is forward contracting, it signs a contract with the processor at CNDS3,000 per metric ton. Another alternative is to buy the July cocoa futures PUT options with a US$3,000 per metric ton strike price for a premium of US$750 per metric ton. Market conditions when cocoa is bought on July 6, 2019, are: July futures is trading at US$2,300 per metric ton, July Canadian dollar is trading at US$0.75 per SCND. Assuming the adjusted basis is CNDS55.41 per metric ton under as expected Contract size is 10 metric tons Calculate the intrinsic and time values of the PUT option on March 6 (in CNDS per metric ton). Calculate the intrinsic of the PUT option on July 6 (in CNDS per metric ton) On a separate diagram, draw the profit or loss (in Canadian dollar) diagram for the future contract and the long PUT options contract at expiration. Label your diagram appropriately Calculate the net cash price for each marketing strategy on July 6, 2019: (i) hedge with a forward contract, (ii) hedge with futures ori) hedge with PUT options. Calculate the net gain or loss for each strategy If Options Inc. knew with perfect foresight what would happen to prices in July, which contract would you recommend (i) hedge with a forward contract, (ii) hedge with futures or (iii) hedge with PUT options? Why? a. b. c. d