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Evaluating Hedging With Futures Contracts (a) Explain the advantages and disadvantages of hedging the...

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Accounting

Evaluating Hedging With Futures Contracts
(a) Explain the advantages and disadvantages of hedging the harvest's value with futures contracts.
Choose the correct answer.
An advantage is fixing the sale price of a commodity at the futures price when the contract is entered. A disadvantage is eliminating the possibility of a gain.
An advantage is tying up capital in a non-interest bearing margin account. A disadvantage is eliminating the possibility of a gain.
An advantage is eliminating the possibility of a loss. A disadvantage is fixing the sale price of a commodity at the futures price when the contract is entered.
An advantage is fixing the sale srice of a commodity at the futures price when the contract is entered. A disadvantage is eliminating the possibility of a loss.
(b) Calculate the spot price six months hence at which the company is indifferent between not hedging and hedging with futures contracts.
Round per bushel price three decimal places.
Per bushel price 5,0 statements will differ without hedging compared to hedging with futures contracts.
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