50.1K

Verified Solution

Link Copied!

ct Question 1 0/3 pts Today is in the month of January. Corn futures currently have contract months listed for March, May, July, September, and December of this year. Corn futures call for physical delivery of corn in the contract month. Your breakfast cereal company plans to hedge a purchase of corn in July. Which of the following contract months would be your best choice? Assume that you plan to use a hedge-and-forget strategy. July March September May December vous Under what circumstances is a long hedge appropriate? More specifically, if the company plans to use a hedge-and- forget strategy, under what circumstances should the company take a long position in the futures contract? More than one answer may be correct. For full credit, you must correctly identify all of the correct answers. When a company knows it will have to purchase an asset in the future. When a company owns an asset and expects to buy more of that asset in the future. When a company does not currently own the asset but expects to do so at some time in the future and will sell the asset at that time When a company owns an asset and expects to sell that asset in the future. rrect Question 4 0/3 pts Under what circumstances is a long hedge not appropriate? ("Long 'ge" means "take a long position in the futures contract used in a hedging strategy.") More than one answer may be correct. For full credit, you must correctly identify all of the correct answers When a company owns an asset and expects to sell that asset in the future. When a company owns an asset and expects to buy more of that asset in the future, When a company knows it will have to purchase an asset in the future. When a company does not currently own the asset but expects to do so at some time in the future and will sell the asset Incorrect Question 5 0/3 pts Selena anticipates that her corn crop will be ready for sale in August, and she projects a harvest of one million bushels. She faces the risk that the future price of corn may be lower than anticipated and thus not cover costs of production. Which of the following are features of the hedging strategy that Selena should adopt? Note: corn futures have contract months of March, May, July, September, and December. Corn futures are settled by delivery. Each contract is for 5,000 bu. More than one answer may be correct. For full credit, you must correctly identify all of the correct answers. Close out the hedge in August after selling the corn in the spot market. Use September contracts. Close out the hedge in September after selling the corn in the spot market. Take a short position in corn futures. Take a long position in corn futures Use August contracts Partial Question 6 1/3 pts Roy Rogers anticipates that his cattle will be ready for sale in July, and he projects his 200 steers will weigh an average of 1,000 pounds aplece. The CME has a live cattle futures contract with August delivery. Currently, the April, June, August, and October contracts are trading. The contract calls for delivery of 40.000 lbs. of live cattle of a specified grade. Which of the following are features of the hedge strategy that Roy should adopt? More than one answer may be correct. For full credit, you must correctly identify all of the correct answers. Take a long position in live cattle futures Close out the hedge in August after selling the cattle in the spot market. Use August contracts Use July contracts Close out the hedge in July after selling the cattle in the spot market Take a short position in live cattle futures. Partial Question 7 1/3 pts Which of the following is a practical limitation when hedging with futures contracts that call for delivery of the underlying asset in the contract month? More than one answer may be correct. For full credit, you must correctly identify all of the correct answers. There may be an imbalance in the delivery month between number of contracts held in open long positions and number of contracts held in open short positions. Liquidity in futures contracts tends to be poor during the delive month. The hedger may not be able to exactly match up quantity to be hedged with quantity underlying the futures contracts used to hedge. Delivery under terms of the futures contract may be costly and inconvenient

Answer & Explanation Solved by verified expert

See Answer