Project #10679 - risk management

1.                       Suppose you are a dealer in sugar. It is February 14, and you hold 112,000 pounds of sugar worth $0.0479 per pound. You are interested in hedging against movements in the market by using the July futures contract on sugar. The futures price is $0.0550 per pound. Each contract is for 112,000 pounds. For simplicity, you use a hedge ratio of 1.0.  (10 marks total)

 

a.                       Determine the original basis. (2 marks)

 

 

b.                      Calculate the profit from a hedge if it is held to expiration and the basis converges to zero. (3 marks)

 

 

c.                       If your hedge period ends in June 1, show how the profit is explained by movements in the basis alone. (5 marks)

 

i have the answers alreasy but i want to make sure if you can do it correctly so if that yes i will statr dealing with you in my next assignment 

thanks

 

 

 

 

 

 

 

 

 

 

 

 

 

Subject Business
Due By (Pacific Time) 08/12/2013 12:00 am
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