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Question

Assume that it is currently October 2009 and you trade futures contracts at the last price.


A

wool grower anticipates a 22,000 kg clip in December. The grower decides to hedge the entire crop using futures. In December the grower shears 24,000 kg of wool, the auction price for wool is 800 cents per kg and December futures contracts are trading for 805 cents per kg.


a.      Calculate the overall value of the clip including the profit or loss from futures trading.


b.     Calculate the overall value of the clip in December if drought conditions limit the grower's clip to only 1,000kg, the auction price for wool is 1,100 cents per kg and the December futures contracts price is 1,100 cents per kg. 



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