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Farmer and Baker Futures

# Farmer and Baker Futures - so he buys a futures contract...

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Farmer and Baker A farmer is expecting to have 100,000 bushels of corn in three months ( September ) She wishes to lock-in the price she receives, So she sells forward if she can find a counter-party. If not, she sells a 3 month futures contract. The price is \$2.00 per bushel.

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Farmer and Baker Regardless of where the price goes, the farmer will receive \$2.00 per bushel, or \$200,000 for her crop. A baker wishes to lock in the price of corn,

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Unformatted text preview: so he buys a futures contract for \$2.00. • Regardless of where the price goes, he will pay \$2.00 per bushel, or \$200,000. Farmer’s position Price \$1.50 \$2.00 \$2.50 Cash Market 150,000 200,000 250,000 Futures Market +50,000 0-50,000 Total 200,000 200,000 200,000 Baker’s position Price \$1.50 \$2.00 \$2.50 Cash Market \$150,000 \$200,000 250000 Futures Market \$50,000-50000 \$200,00 \$200,000 200,000...
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