You are the General Manager of Caribbean Chocolate Limited and your Chief Operations Officer and...
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You are the General Manager of Caribbean Chocolate Limited and your Chief Operations Officer and Chief Financial Officer have just negotiated a contract to sell one thousand (1,000) tons of cocoa. It has been agreed that the price that will apply in the contract is the market price on September 23, 2021, approximately four months from now. Suppose the spot price today is USD$2040 per ton and the September cocoa futures price is USD$2075.00 per ton on the exchange. Each futures contract is for the delivery of 10 tons of cocoa. Show how your company can hedge its position for the sale using a futures contract if
The price four months from now turns out to be $2100 per ton and the Chairman of the board is extremely upset that you did not benefit from the upward movement in price because of the positions taken in the futures market. Write a brief memo to him explaining the actions of your Chief Operating Officer and Chief Financial Officer.
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