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(a) Under what circumstances is a "long hedge" appropriate? (b) A cattle farmer expects to sell 260,000 pounds of live cattle in three months. The live-cattle futures contract traded by the Chicago Mercantile Exchange (CME) Group is for the delivery of 20.000 pounds of cattle. Suppose the Std. Deviation of the spot price of live cattle is $1.55, and the Std Deviation of the futures price of live cattle is $2.25. The correlation between the spot and futures price is 85% How much of the 260,000 pounds should be hedged? (m) How can the farmer use the contracts for hedging (ieuse long or short contracts) and how many contracts round to the nearest whole number)? (H) From the farmer's viewpoint, what are the advantages and disadvantages of hedging? (a) Under what circumstances is a "long hedge" appropriate? (b) A cattle farmer expects to sell 260,000 pounds of live cattle in three months. The live-cattle futures contract traded by the Chicago Mercantile Exchange (CME) Group is for the delivery of 20.000 pounds of cattle. Suppose the Std. Deviation of the spot price of live cattle is $1.55, and the Std Deviation of the futures price of live cattle is $2.25. The correlation between the spot and futures price is 85% How much of the 260,000 pounds should be hedged? (m) How can the farmer use the contracts for hedging (ieuse long or short contracts) and how many contracts round to the nearest whole number)? (H) From the farmer's viewpoint, what are the advantages and disadvantages of hedging

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