Question: 2. Hedge and store decision (with basis risk): Date 1-Oct Cash Cash Price $2.30 Cost of holding from Oct 1 to May 1 =

2. Hedge and store decision (with basis risk): Date 1-Oct Cash Cash

2. Hedge and store decision (with basis risk): Date 1-Oct Cash Cash Price $2.30 Cost of holding from Oct 1 to May 1 = $0.21 Expected Closing Basis = -$0.15 (A) What is the expected profit margin? = 1-Oct 1-May Sell Cash @ $2.40 Futures May Futures $2.75 Sell May Futures @ $2.75 Buy May Futures @ $2.65 (B) What is the opening basis? 2.30 -2.25 - .45 (C) What is the actual closing basis? 2.40-2.45 = -.25 (D) What is the gain or loss on futures market result? = 2.15-2.65 - 10 PER UNT (D) What is the gain or loss on cash market result? = (E) What is the realized price (or net selling price)? = (F) What is the overall profit? =

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