You are the purchasing agent for a cereal company. You anticipate that your firm will need 100,000 bushels of wheat in August. The futures contracts on wheat is based on 5,000 bushels and are currently quoted at 1034.75 cents. You can hedge your price risk by ______ a total of _____ contracts at a current value of _____ per contract.

Answer Question 2 (12 marks) On 12 Jun 2023, a speculator buys five Nov 2023 US Soybeans futures contracts at a price of 1,369.50 cents per bushel. The speculator closes out her futures position on 10 Jul 2023 at a price of 1,320.00 cent per bushel. The US Soybeans futures contract is written on 5,000 bushels of soybeans and, for a speculator, the initial and maintenance margins are $3,375 and $2,500 per contract respectively. Assume that the speculator does not withdraw any excess out of their margin account. Data on the daily settlement price for the Nov 2023 US Soybeans futures contract during the period between 12 Jun and 10 Jul 2023 can be found in a spreadsheet titled US Soybeans Futures Prices.xlsx posted on Canvas. Required: (a) At the time the futures position is established, what is the minimum price movement that will generate a margin call? Report your answer in cents with 2 decimal places (2 dps). (2 marks) (b) Construct a table as below to illustrate the daily marking-to-market (and final settlement) of the speculator’s overall futures position. 3 Table Q2 Day Date Trade price (¢) Settlement price (¢) Daily gain ($) Cumulative gain ($) Margin account balance ($) Margin call ($) 1 1 2 3 … ... Note: the table is identical to Table 2.1 on page 30 of the prescribed textbook. (8 marks) (c) What is the overall profit/loss of the speculator? Decompose the overall profit/loss into two components: (i) total margin calls, and (ii) the change in the margin account balance. (2 marks) Q2 Data Day Date Trade Price (cents/bushel) Settlement or Futures Price (cents/bushel) Daily gain/loss ($) Cumulative gain/loss ($) Margin account balance ($) Margin call ($) 1 2023/6/12 1369.50 16875 1 2023/6/12 1,372.75 -812.50 -812.50 17,687.50 -812.50 2 2023/6/13 1,399.25 -6,625.00 -7,437.50 10,250.00 3 2023/6/14 1,388.25 2,750.00 4 2023/6/15 1,428.25 5 2023/6/16 1,466.50 6 2023/6/18 1,465.88 7 2023/6/20 1,477.25 8 2023/6/21 1,514.75 9 2023/6/22 1,500.50 10 2023/6/23 1,494.50 11 2023/6/26 1,424.50 12 2023/6/27 1,395.50 13 2023/6/28 1,361.00 14 2023/6/29 1,367.75 15 2023/6/30 1,442.00 16 2023/7/3 1,353.75 17 2023/7/5 1,355.00 18 2023/7/6 1,339.50 19 2023/7/7 1,317.75 20 2023/7/10 1320.00 1,343.50

A wheat flour manufacturer is wanting to hedge commodity price risk - namely the wheat price. They want to protect against any unfavourable move in the wheat price and want to fully participate in any favourable movements. A ? on wheat would suit the manufacturer, however, the ? on wheat would result in a higher upfront premium cost to the manufacturer but provide slightly better protection. Alternatively, if the manufacturer desired a reduction in any hedging cost, and was willing to forgo some part of a favourable price move in the grain price, but still remain protected against an unfavourable price move, they could establish a hedge comprised of a long ? wheat ? and a short ?.

At the end of six months for a wheat farmer who sold previously a 6 month wheat futures contract, he may: Question 5Select one:a.can sell the wheat via the spot grain market and at the same time buy a futures contract identical to the contract originally takenb.can sell the wheat via the spot grain market and at the same time sell a futures contract identical to the contract originally taken outc.will make a profit if the price of wheat has gone up on the day the farmer closes out his contractd.deliver the wheat as per the contract and pay out the original agreed-upon price

Matthew grows wheat on his farm. One of his fields produced 66.8 bushels of wheat this year. If wheat is currently selling for $5.40 per bushel, how much will Matthew earn from this field?

6.You are the treasury manager of a bank and you know that the bank will need to borrow.$15 million for 3 months in two months time.Interest rates are currently 6.8% and the current quoted price for bank accepted bills futures contracts expiring in 3 months is 92.4.(Assume 30 days each month,365 days in a year,and futures contracts have a standard $1 million face value) (a)Today,what position would you take in the futures market to hedge this risk? Enter"1"for buy/long futures contracts or "2" for sell/short futures contracts (b)After two months,interest rates fall to 6.55% and the quoted price for bank-accepted bills futures contracts is 92.9. What is the profit or loss on the futures market?(for a loss enter a negative number) $ (round your answer to two decimal places) What is the profit or loss on the physical market?(for a loss enter a negative number) $ (round your answer to two decimal places) (c)Was this a perfect hedge? Enter"1"for yes and "2"for no