Evaluating Hedging With Futures Contracts (a) Explain the advantages and disadvantages of hedging the...
50.1K
Verified Solution
Link Copied!
Question
Accounting
Evaluating Hedging With Futures Contracts
a Explain the advantages and disadvantages of hedging the harvest's value with futures contracts.
Choose the correct answer.
An advantage is fixing the sale price of a commodity at the futures price when the contract is entered. A disadvantage is eliminating the possibility of a gain.
An advantage is tying up capital in a noninterest bearing margin account. A disadvantage is eliminating the possibility of a gain.
An advantage is eliminating the possibility of a loss. A disadvantage is fixing the sale price of a commodity at the futures price when the contract is entered.
An advantage is fixing the sale srice of a commodity at the futures price when the contract is entered. A disadvantage is eliminating the possibility of a loss.
b Calculate the spot price six months hence at which the company is indifferent between not hedging and hedging with futures contracts.
Round per bushel price three decimal places.
Per bushel price statements will differ without hedging compared to hedging with futures contracts.
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
