In: Finance
The spot price is the current price in the marketplace at which a given asset—such as a security, commodity, or currency—can 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 Confectionery its CFO gets into a future contract for Cocoa per month at $0.80 per pound for 45000 pound of cocoa.
a) The economies of future transaction when the spot price on the delivery date is
b) The variability of Beazley's total outlay under the future contract will be $0.80*45000 = $36000
c) No we shouldn't have foregone entering into this contract because we can't predict the future price of cocoa and while its $0.70 per pound right now it's only with the hindsight we have this information. while if we get into the contract we lock in the price of one of our crucial ingredient which would bring some consistency in our profit.