A Soybean Farmer Anticipates the Harvest of 10,000 Bushels but Is

question 7

Essay

A soybean farmer anticipates the harvest of 10,000 bushels but is concerned about the spot price that may exist at that time.He therefore sells two futures contracts (5,000 bu.each, @ $5.75 per bu.).Unfortunately, the farmer was overly pessimistic, and the spot price at contract expiration is $6.00 per bushel.Ignoring the premium paid, and making the simplifying assumption that the contract was only held for one "day," show the farmer's financial results of hedging.

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Definitions:

Global Corporations

Large multinational companies that operate and provide goods or services in multiple countries around the world.

Gray Market Activity

The trade of goods through distribution channels that are unauthorized by the original manufacturer. This is typically legal but unregulated and unofficial.

Countertrade

A form of international trade in which goods or services are exchanged for other goods or services rather than for hard currency.

Dumping

Selling a product for a price less than the cost of production to capture market share and force competitors out of the market.