Question

In: Finance

A cattle farmer expects to have 120,000 pounds of live cattle to sell in three months....

A cattle farmer expects to have 120,000 pounds of live cattle to sell in three months. The live-cattle futures contract in the Chicago mercantile exchange is for the deliver of 40,000 pounds of cattle. How can the farmer use the contract for hedging? From the farmers point of viewpoint, what are the pros and cons of hedging?

Solutions

Expert Solution

Please do Upvote if you are served. Feel free to reach out in the comments

Cheers!!!

Answer:

Unhedged Scenario

Hedged Scenario

Advantages of hedging

Dis -advantages of hedging

jeff jeffy answered 1 month ago
Next > < Previous

Related Solutions

A cattle farmer expects to have 120,000 pounds of live cattle to sell in three months....
A cattle farmer expects to have 120,000 pounds of live cattle to sell in three months. The live-cattle futures contract traded by the CME Group is for the delivery of 40,000 pounds of cattle. How can the farmer use the contract for hedging? From the farmer’s viewpoint, what are the pros and cons of hedging?
An investor enters into a short 3 months’ forward contract to sell 100,000 British pounds for...
An investor enters into a short 3 months’ forward contract to sell 100,000 British pounds for US dollars. Table 2 Spot and forward quotes of the USD/GBP exchange rate Maturity Bid Offer Spot 1.2732 1.2736 1-month forward 1.2746 1.2751 3-month forward 1.2772 1.2777 1-year forward 1.2883 1.2889 Use Table 2 to indicate how much does the investor gain or lose if the exchange rate at the end of the contract is (a) 1.25 (b) 1.30 (c) Explain what is meant...
A U. S. company expects to pay its supplier 1 million British pounds in 3 months...
A U. S. company expects to pay its supplier 1 million British pounds in 3 months and is considering whether to hedge the resulting foreign exchange risk with a futures contract or a forward contract on British pounds with 3 months to the delivery date. The correlation between changes in the spot price of British pounds in terms of U. S. dollars and changes in the U. S. interest rate is 0.85. Taking into account the daily settlement process associated...
Heart & Soul expects to sell 20,00 CDs in the first 4 months of 20X1. Each...
Heart & Soul expects to sell 20,00 CDs in the first 4 months of 20X1. Each CD sells for $12 and costs $8. Operating budget for Q1 are projected as follows: 20X1 January February March April Expected sales (in Units) 2,500 4,000 7,500 6,000 a)    Prepare a monthly sales forecast in dollars for Q1 (January, February and March) b)    Prepare a monthly contribution margin statement for Q1 Assuming that Heart & Soul ending inventory is projected to be 80% of...
A fund manager expects to receive a cash inflow of R50,000,000 in three months. The manager...
A fund manager expects to receive a cash inflow of R50,000,000 in three months. The manager wishes to use futures contracts to take a R30,000,000 synthetic position in shares and a R20,000,000 in bonds today. The share would have a beta of 1.05 and the bond a modified duration of 8.25. A share index futures contract with a beta of 0.80 is priced at R300,000 and a bond futures contract with a modified duration of 7.50 is priced at R200,000....
Suppose you are a wheat farmer. You expect a new harvest of wheat three months from...
Suppose you are a wheat farmer. You expect a new harvest of wheat three months from today. The price of wheat at the time of harvest in three months is uncertain. How can the farmer avoid the price risk? Suppose you are a miller. You need to purchase wheat in three months from today. You are faced with the price risk, too. How can you have insurance for the price risk?
Getty Company expects sales for the first three months of next year to be $195,000, $265,000...
Getty Company expects sales for the first three months of next year to be $195,000, $265,000 and $315,000, respectively. Getty expects 50 percent of its sales to be cash and the remainder to be credit sales. The credit sales will be collected as follows: 10 percent in the month of the sale and 90 percent in the following month. Compute a schedule of Getty’s cash receipts for the months of February and March.
A patient with stage four (terminal) brain cancer is estimated to have 3 months to live....
A patient with stage four (terminal) brain cancer is estimated to have 3 months to live. This patient, before the confused state of mind, had asked to 'die with dignity', by taking a lethal dose of a cocktail of drugs. (His physicians have conceded to his request and will not be breaking any laws in the state they are in). Do you agree or disagree with physician-assisted suicide? Explain why or why not.
Joe and Sue (married) sell their primary residence in 2018. They have live there since 1984....
Joe and Sue (married) sell their primary residence in 2018. They have live there since 1984. The selling price is 500000 Their basic of the home is 175000 What is their taxable gain?
10. Three Bears Manufacturing produces an auto-quartz watch movement called OM362. Three Bears expects to sell...
10. Three Bears Manufacturing produces an auto-quartz watch movement called OM362. Three Bears expects to sell 20,000 units of OM362 and to have an ending finished inventory of 5,000 units. Currently, it has a beginning finished inventory of 1,100 units. Each unit of OM362 requires two labor operations, two labor hours of assembling and three labor hours of polishing. The direct labor rate for assembling is $11 per assembling hour and the direct labor rate for polishing is $14.50 per...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT