Define F: Futures price at time hedge is set up F2: Futures price at time asset...
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Define F: Futures price at time hedge is set up F2: Futures price at time asset is sold S: Asset price at time of sale b. Basis at time of sale Price of asset Gain on Futures Net amount received $ F-F S (F-F) F, + b Short hedges benefit from a strengthening basis A farm expects to harvest 30,000 bushels of corn in November. It decides to use the December contract for hedging. The farm sells six December corn futures contracts on February 2. One contract is for the delivery of 5,000 bushels. The futures price on February 2 is $6.73 per bushel. The farm finds that it is ready to sell the corn on November 9. It therefore closes out its futures contract on that date. The spot price and futures price on November 9 are $6.09 per bushel and $5.95 per bushel Compute the effective price the farm received to sell the 30,000 bushels of corn. Define F: Futures price at time hedge is set up F2: Futures price at time asset is sold S: Asset price at time of sale b. Basis at time of sale Price of asset Gain on Futures Net amount received $ F-F S (F-F) F, + b Short hedges benefit from a strengthening basis A farm expects to harvest 30,000 bushels of corn in November. It decides to use the December contract for hedging. The farm sells six December corn futures contracts on February 2. One contract is for the delivery of 5,000 bushels. The futures price on February 2 is $6.73 per bushel. The farm finds that it is ready to sell the corn on November 9. It therefore closes out its futures contract on that date. The spot price and futures price on November 9 are $6.09 per bushel and $5.95 per bushel Compute the effective price the farm received to sell the 30,000 bushels of corn.
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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