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c. If the hedge allows the exporter to make a profit, assuming the basis is at itsexpected level. d.The number of futures contracts needed to fully hedge his wheatrequirements. 2.Determine the following from the assumptions on December 1: a.The local basis. b. The exporter's actions in the cash and futures markets c.The outcome of his hedge d.His profit or loss per bushel after expenses are deducted

Scenario It is September and an exporter in New Orleans has made a commitment to sell 50,000 bushels of wheat to a customer in November at $3.25/bu. This price includes the shipping charges to the foreign port. The exporter has limited storage and, therefore, will purchase the wheat at the same time that he loads the ship for export. The export costs are \$.12/bu and commission charges are $.01/bu. In order to make a profit on the transaction, the exporter must purchase the wheat for less than $3.12 bu ($3.25$.12$.01). Assumptions on September 25 a. The local cash price is $3.11 /bu. b. December futures are trading at $3.21/ bu. c. The average historical basis in early December is $.15 under the December. Assumptions on December 1 a. The exporter hedged on September 25 and is ready to offset his hedge. b. The local cash price is $3.20/bu. c. December futures are trading at $3.35/bu. Use the T-account below to illustrate the transactions based on the assumptions for September 25 and December 1. 1. Determine the following from the assumptions on September 25 : a. The nearby basis. b. The position the exporter should take in the futures market. Scenario It is September and an exporter in New Orleans has made a commitment to sell 50,000 bushels of wheat to a customer in November at $3.25/bu. This price includes the shipping charges to the foreign port. The exporter has limited storage and, therefore, will purchase the wheat at the same time that he loads the ship for export. The export costs are \$.12/bu and commission charges are $.01/bu. In order to make a profit on the transaction, the exporter must purchase the wheat for less than $3.12 bu ($3.25$.12$.01). Assumptions on September 25 a. The local cash price is $3.11 /bu. b. December futures are trading at $3.21/ bu. c. The average historical basis in early December is $.15 under the December. Assumptions on December 1 a. The exporter hedged on September 25 and is ready to offset his hedge. b. The local cash price is $3.20/bu. c. December futures are trading at $3.35/bu. Use the T-account below to illustrate the transactions based on the assumptions for September 25 and December 1. 1. Determine the following from the assumptions on September 25 : a. The nearby basis. b. The position the exporter should take in the futures market

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