Presented by Professor Donald Larson

Presented by Professor Donald Larson - Futures Market...

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Futures Market Participants Speculator Assumes the risk of price change for profit Buy Low-sell high Sell high-buy low Hedger Transfers risk of price change to the market Wants to lock in a profit margin greater than costs
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Speculator is Price Risk Taker Speculator If future prices expected to decline Wants to sell futures contracts now, buy back futures contracts later Speculator If future prices expected to increase Wants to buy futures contracts now, sell the futures contracts later
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Cash futures price relationship Price Time Futures Cash
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Initiation of a position in the futures market that is intended as a temporary substitute for the sale or purchase of the actual commodity at a later date. Forward pricing through futures markets. Process of making equal but opposite positions in the cash and futures markets. Hedging
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INVERTED MARKET Figure 7- 12: Inverted Futures Market. Prices Showing Negative Carry. Price per Bushel Relative Contract Prices Sept. 2.98 July 3.05 May 3.10 March 3.20
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NORMAL MARKET Figure 7-7: Stairsteps in Soybean Futures Contract Prices to Reflect Cost of Full Carry Contract Month to Contract Month. Price per Bushel Harvest TIME End of Crop Year Oct. $7.00 Nov. $7.10 Jan. $7.30 Mar. $7.50 May $7.70 July $7.90 Aug. $8.00
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AND FUTURE PRICES FOR WHEAT λ PRICE PER BUSHEL 4.00 3.90 3.80
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Presented by Professor Donald Larson - Futures Market...

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