Suppose in February, a palm oil producer anticipates that he will have 180 metric tonnes of crude palm oil ready for sale in four months' time. He would like to fix the price for his produce. The current market price of palm oil is about RM2,250 per metric tonne while June crude palm oil is currently trading at RM2,265. 

The palm oil producer's exposure or risk is that the price for crude palm oil may fall between now and the time for the sale of the palm oil (June). Therefore, to hedge this exposure or risk, the palm oil producer will enter into a contract to sell futures.

  Calculate the number of futures contracts that the palm oil producer will need to sell to hedge this exposure.

Answer rating: 100% (QA)

To hedge the exposure to the risk of the price of crude palm oil falling the palm oil producer can e... View the full answer