The Yummy Chocolate Company ("YCC") wishes to hedge its cocoa exposure for the next 90 days using futures. The cash price of cocoa today is $2,546 per metric ton. The 90-day futures price for cocoa today is $2,625 per metric ton. At expiration of the futures contract in 90 days, the cash price of cocoa is $2,590 per metric ton. How will YC hedge its exposure? 

 YCC's final cocoa cost after a) cash purchas of cocoa; b) settling of futures position. 

 ABC purchases a call option at a strike price of $17.44. At expiration the underlying is trading at $17.23. Does ABC exercise or abandon the option? Ignoring the option premium, what is ABC's profit or loss on the option?At expiration, the underlying is trading at $17.77. 

Does ABC exercise or abandon the option? Ignoring the option premium, what is ABC's profit or loss on the option?

Answer rating: 100% (QA)

1 To hedge its cocoa exposure YCC can enter into a short futures position This means that YCC will s... View the full answer