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Author Question: Krusty Burger requires pork for producing its famous Meat-Flavored Sandwich. Frozen Pork Bellies ... (Read 92 times)

Capo

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Question 1

Farmer Jones sold wheat futures contracts at a price of $3 per bushel. She will profit from her futures position if
◦ the futures price goes up.
◦ the futures price goes down.

Question 2

Krusty Burger requires pork for producing its famous Meat-Flavored Sandwich. Frozen Pork Bellies futures contracts trade on the CME. Each contract calls for the delivery of 40,000 lbs. of USDA-inspected Pork Bellies. Krusty requires 40,000lbs on July 10. Today the spot price of pork bellies is $1.177 per pound and the July futures contract is trading for a price of $1.2055/lbs. Assume Krusty enters the appropriate position in July futures contracts to hedge its price risk. On July 10th it buys its pork from local pig farmers at $1.1655/lbs. and closes out the futures position. Unfortunately, the pork bellies futures price had not achieved convergence on the day the position is closed-the futures price is $1.1700 when Krusty Burger closes its position. What is the cost per pound of pork? The purchase cost includes the cumulative profit from the futures transactions.
◦ $1.1255
◦ $1.1655
◦ $1.1770
◦ $1.2010


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Marked as best answer by Capo on Apr 25, 2021

ashely1112

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Capo

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Reply 2 on: Apr 25, 2021
Excellent


nathang24

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Reply 3 on: Yesterday
Great answer, keep it coming :)

 

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