Question: a. What is the difference between a forward contract and a futures contract b. What are the elements of an options contract? A local brewery

  1. a. What is the difference between a forward contract and a futures contract

b. What are the elements of an options contract?

  1. A local brewery called Brew LLC uses barley to make beer.
    1. They can make profit from the beer if they buy barley at $120 or less per ton
    2. Brew is worried that the price of barley may rise beyond $120 per ton
    3. The Brew has enough barley in the warehouse to last for 4 months and is worried about the price of brew in 4 months time
    • What options contract should Brew LLC buy in order to hedge their risk of price fluctuation of barley?
    • Describe with itemized steps, how the contract will help Brew LLC hedge their risk of price fluctuation of barley?

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