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:

Foreign Currencies

The currencies of other countries, used for conducting international transactions or as an investment.

Bonds

Fixed-income investments representing loans made by an investor to a borrower, typically corporate or governmental, which include terms for fixed interest payments and the eventual return of principal.

Gold Reserves

The quantity of gold held by a national central bank or government intended to serve as a store of value and as a guarantee to redeem promises to pay depositors, note holders, or trading peers.

International Monetary Fund

An international organization that aims to foster global monetary cooperation, secure financial stability, and facilitate international trade.