Question 3. (The Basis)

Suppose you are a dealer in sugar. It is September

26, and you hold 112,000 pounds of sugar worth

$0.0479 per pound. The price of a futures con-

tract expiring in January is $0.0550 per pound.

Each contract is for 112,000 pounds.

Question 6.

For each of the following situations, determine

whether a long or short hedge is appropriate.

Justify your answers.

a. A firm anticipates issuing stock in three

months.

b. An investor plans to buy a bond in 30 days.

c. A firm plans to sell some foreign currency

denominated assets and convert the proceeds

to domestic currency.