You expect to deliver 42,000 bushels of wheat to the market in July.Today,you hedge your position by selling futures contracts on half of your expected delivery at the final price of the day.Assume that the market price turns out to be 582.0 when you actually deliver the wheat.How much more or less would you have earned if you had not bought the futures contracts?
Wheat - 5,000 bu.:
U.S.cents per bu.

Question

Quizplus · Accepted Answer

Loss on contract = (0.5 × 42,000) × [(582.0′ - 561.5′)/100] = $4,305. You would have received $4,305 more if you had not sold the futures contract.

You Expect to Deliver 42,000 Bushels of Wheat to the Market