Grand Blanc received an order to sell 1 million units of Magic Bullet at a price...
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Grand Blanc received an order to sell 1 million units of Magic Bullet at a price of $15.00 to be delivered one year from today. No futures contract is available on Magic Bullet. However, a futures contract on Wishful Thinking is trading at 3,000 today and the value of one contract today is 250 times its price. The o of price changes in Magic Bullet is $25 and Wishful Thinking is €15. The correlation between the price changes between these two commodities is 0.75. Grand Blanc would like to hedge the value of this order. (Points: 1 + 2) a. What would be proper: Long or Short Hedge? b. How many futures contracts of Wishful Thinking would be needed? Grand Blanc received an order to sell 1 million units of Magic Bullet at a price of $15.00 to be delivered one year from today. No futures contract is available on Magic Bullet. However, a futures contract on Wishful Thinking is trading at 3,000 today and the value of one contract today is 250 times its price. The o of price changes in Magic Bullet is $25 and Wishful Thinking is €15. The correlation between the price changes between these two commodities is 0.75. Grand Blanc would like to hedge the value of this order. (Points: 1 + 2) a. What would be proper: Long or Short Hedge? b. How many futures contracts of Wishful Thinking would be needed?
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a Since Grand Blanc is going long the Magic Bullet units it needs to take a short he... View the full answer
Related Book For
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts
Posted Date:
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