Suppose you are Chief Financial Officer at Beazley Confectionery, Inc. and you purchase a large quantity...

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Suppose you are Chief Financial Officer at BeazleyConfectionery, Inc. and you purchase a large quantity of cocoa eachmonth. You are concerned about the price of cocoa one month fromnow. You want to guarantee that you will not pay more than $0.80per pound for forty-five thousand pounds. You do not want to payfor insurance, but you do want to lock in a price of $0.80 perpound for forty-five thousand pounds.
Show the economics of a futures transaction for spot prices ondelivery date of $0.70, $0.80, and $0.95.
What is the variability of Beazley’s total outlays under thefutures contract?
If at the time of delivery, cocoa is $0.70 per pound, shouldyou have foregone entering into the futures contract? Why or whynot?

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The spot price is the current price in the marketplace at which a given assetsuch as a security commodity or currencycan be bought or sold for immediate delivery Whereas a futures price is an agreed upon price for future delivery of the asset In case of Beazley See Answer

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Suppose you are Chief Financial Officer at BeazleyConfectionery, Inc. and you purchase a large quantity of cocoa eachmonth. You are concerned about the price of cocoa one month fromnow. You want to guarantee that you will not pay more than $0.80per pound for forty-five thousand pounds. You do not want to payfor insurance, but you do want to lock in a price of $0.80 perpound for forty-five thousand pounds.Show the economics of a futures transaction for spot prices ondelivery date of $0.70, $0.80, and $0.95.What is the variability of Beazley’s total outlays under thefutures contract?If at the time of delivery, cocoa is $0.70 per pound, shouldyou have foregone entering into the futures contract? Why or whynot?