Question: Question 2 a) An Avocado farmer is thinking about hedging his farm produce in the derivatives market. He has heard of but unfamiliar with forwards

Question 2 a) An Avocado farmer is thinking about hedging his

Question 2 a) An Avocado farmer is thinking about hedging his farm produce in the derivatives market. He has heard of but unfamiliar with forwards and futures contracts. Please advise on how he could set up a hedge highlighting the suitability of forwards and futures. (4 marks) b) The no-arbitrage price of a one-year Euro currency forward contract is USD 1.35 per Euro while the spot rate is USD 1.3 per Euro. The Euro rate is 4% and USD rate is 8%. Suppose the available quote on this contract is USD 1.2 per Euro, demonstrate step by step the arbitrage strategy

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