Question: The table below shows spot (ie current as at April 26)and forward prices for NZ Carbon Emissions Allowances. a:what does the relationship between the spot

The table below shows spot (ie current as at April 26)and forward prices for NZ Carbon Emissions Allowances.

The table below shows spot (ie current as at April 26)and

a:what does the relationship between the spot and forward price say about expectations of the price of Carbon over time?

b:If you want to hedge your carbon risk out to April 2025, then assuming that you can trade these contracts on margin(ie no cash upfront), and that we ignore initial margin requirements, what are the advantages of buying the April 2025 contract vs. buying the spot instrument now and holding until April 2025.

c:If we move forward in time to April 2025 and the price of NZ Emissions Allowances is NZD 55. You had bought 100,000 April 2025 contracts today at the price indicated above. What is your profit or loss.What if the price was NZD41.

d:How would your answer differ if you had bought the physical units today.

CONTRACT DESCRIPTION NZ$) BEST BID BEST OFFER LAST/FIX PRICE HISTORY SPOT NZUS 33920- NZUS-Spot 36.90 37.10 37.05 NZUS- April 2022 38.05 38.30 38.17 $3520 33320 33120 NZUS- April 2023 39.10 39.50 39.30 NZUS. April 2024 40.20 40.80 40.50 NZUS. April 2025 41.30 4210 41.70 52120 NZUS-April 2026 42.45 42.50 42.97 Source: Comm Trade Source: Comm Trade CONTRACT DESCRIPTION NZ$) BEST BID BEST OFFER LAST/FIX PRICE HISTORY SPOT NZUS 33920- NZUS-Spot 36.90 37.10 37.05 NZUS- April 2022 38.05 38.30 38.17 $3520 33320 33120 NZUS- April 2023 39.10 39.50 39.30 NZUS. April 2024 40.20 40.80 40.50 NZUS. April 2025 41.30 4210 41.70 52120 NZUS-April 2026 42.45 42.50 42.97 Source: Comm Trade Source: Comm Trade

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

The Biggs Department Store chain has hired an advertising firm to determine the types and amount of advertising it should invest in for its stores. The three types of advertising available are...

PRICE HISTORY SPOT NZUS $39 20- $37 20- 835 20 83020- 33120 - $27 20 825 20- $23 20- $2120 2509 Source: Comm Trade 3: (4 Marks) The table below shows spot (ie current as at April 26) and forward...

PRICE HISTORY SPOT NZUS $99 20- 537204 33520 83320-4 $3120 - $29 204 2720 25 20 $2220 mummy Source: CommTrade 3:04 Marks) The table below shows spot (ie current as at April 26) and forward prices for...

1. Explain why MGRM wanted to offer a price guarantee on purchase contracts for its customers? 2. Describe the position that MGRM had. Why did it want to hedge its position? 3. Describe the basic...

Executive Summary The United Nations Sustainable Development Goals (SDGs) were adopted by all United Nations Member States in 2015 to end poverty, reduce inequality, to protect natural resources. The...

Erasmus Platform for Sustainable Value Creation, Case Study: McDonald's 3) analysis of the case study incorporating the course learning objectives (A) and case study questions (B). Use the case study...

Published by CQ Press, an Imprint of SAGE Publications, Inc. www.cqresearcher.com Future of Cars Are Americans ready for self-driving vehicles? C ars that drive themselves, long a staple of science...

AnalysingBega Cheese Limited (ASX code BGA): A. Industry Analysis 1. What would be the performance for the industry in next year, in next 5 years, and in the long run? And why do you think so? 2. Who...

AnalysingBega Cheese Limited (ASX code BGA): A. Industry Analysis 1. What would be the performance for the industry in next year, in next 5 years, and in the long run? And why do you think so? B....

Evaluate the potential gains and losses for forwards,future,call options,put options and swaps. Outline and describe the different risks that each type of derivative contract faces. Describe...

The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...

In Problems 37-52, find the area bounded by the graphs of the indicated equations over the given intervals (when stated). Compute answers to three decimal places. y = -x + 1; y = 0; -1 x 2

MNO Ltd. has incurred costs of US$200,000 for the development of a new product. It has capitalised these costs in accordance with AS 38. The costs are amortised over its estimated useful life of 4...

Which of the following would not increase operating accruals? Question 5 options: Capital expenditures increase Accounts receivable increase Inventories decrease Accounts payable decrease

On 1 March 2007 DB Limited issued R560 000 15% debentures at R98. The debentures were to be redeemed at par in four equal annual payments starting 28 February 2010. Required: Journalise the above...