Question
In: Finance
A-Corp can supply 50,000 metric tons (MT) of crude palm oil (CPO) to L-Brothers on 15th...
A-Corp can supply 50,000 metric tons (MT) of crude palm oil (CPO) to L-Brothers on 15th March 2021. The current CPO price is $3400 per MT. It is expected that the CPO could be trading at $2700 per MT on 15th March 2021. The FCPO (CPO Futures) is currently trading at $3450 per MT. Each FCPO contract is 25 MTs. If the FCPO is trading at $2100 per MT on 15th March 2021, calculate the net sales revenue of A-Corp in this supply transaction if it decides to hedge by using FCPO contracts
Solutions
Expert Solution
first we calculate no. of FCPO contracts purchased by A-corp.
no. of FCPO contracts purchased = total volume/volume per contract = 50,000 MT/25 MT = 2,000
net sales revenue = no. of FCPO contracts purchased*(Futures price - spot price at expiration)
net sales revenue = 2,000*($3,450 - $2,100) = 2,000*$1,350 = $2,700,000
the net sales revenue of A-Corp in this supply transaction if it decides to hedge by using FCPO contracts is $2,700,000.
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