You are the purchasing agent for a major cookie company.You anticipate that your firm will need 20,000 bushels of oats in December.You decide to hedge your position today and did so at the closing price of the day.Assume that the actual market price turns out to be 228.0 on the day you actually buy the oats.How much did you gain or lose by hedging your position?
Oats - 5,000 bu.: Cents per bu. $$\begin{array} { | r | r | r | r | r | r | }
\hline & \text { Open } & \text { High } & \text { Low } & \text { Settle } & \begin{array} { r }
\text { Prev } \
\text { Settle }
\end{array} \
\hline \text { Dec } & 229.2 & 231.6 & 226.4 & 230.0 & 236.0 \
\hline
\end{array}$$
A)lost $4,000
B)lost $400
C)saved $40
D)saved $400
E)saved $4,000

Question

You are the purchasing agent for a major cookie company.You anticipate that your firm will need 20,000 bushels of oats in December.You decide to hedge your position today and did so at the closing price of the day.Assume that the actual market price turns out to be 228.0 on the day you actually buy the oats.How much did you gain or lose by hedging your position?
Oats - 5,000 bu.: Cents per bu. $$\begin{array} { | r | r | r | r | r | r | } 
\hline & \text { Open } & \text { High } & \text { Low } & \text { Settle } & \begin{array} { r } 
\text { Prev } \
\text { Settle }
\end{array} \
\hline \text { Dec } & 229.2 & 231.6 & 226.4 & 230.0 & 236.0 \
\hline
\end{array}$$
A)lost $4,000
B)lost $400
C)saved $40
D)saved $400
E)saved $4,000

Quizplus · Accepted Answer

Savings = 4 × 5,000 × [(228′ - 230′)/100] = -$400You lost $400 by hedging.

You Are the Purchasing Agent for a Major Cookie Company