Assume, US risk-free rate: R (US) F = 1.5% p.a. Canadian risk-free rate: R (CA) F = 2.2% p.a. All interest rates are given with continuous compounding.

Suppose you want to hedge the purchase of 11000 metric tons of soybeans on May 10, 2021. Futures contracts for soybeans (Ticker: ZS) are traded on the CME.

A) What is your trading strategy? Now assume you entered the contract chosen above at a price of 528

B) What is the gain/loss from hedging, if you close out the contract at a price of 522?

C) Assuming the basis will be between −20 and +20 when you close out your contract, what is your minimum total cost of purchasing the soybeans (including hedging profits/losses)? Graph the total cost C as a function of the value of the basis b..

D) Was the hedge successful, if the basis at the time of the sale is +3? Explain

Answer rating: 100% (QA)

A To hedge the purchase of 11000 metric tons of soybeans you can enter into a futures contract for soybeans Ticker ZS on the CME You would take a shor... View the full answer