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commodity hedging

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › commodity hedging

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • October 19, 2020 at 9:31 pm #590626
    s k
    Participant
    • Topics: 2
    • Replies: 3
    • ☆

    i need help on this question

    Question 1
    (i) The following specifications for the available Soya beans based futures contracts

    Commodity Price Symbol Month/Expiry Contract Size Months Point Forecast
    Value Price Jun 21
    US Soybeans
    1005 ZS (S) Nov 20 5,000 Bushels FHKNQUX 1 = $50 892
    US Soybean Oil
    35 ZL (BO) Dec 20 60,000 Lbs. FHKNQUVZ 1 = $600 28
    US Soybean Meal
    324 ZM (SM) Dec 20 100 Tonnes FHKNQUVZ 1 = $100 293

    NB: 1 bushel of soybeans = 60 pounds = 10.7 pounds of crude soy oil = 47.5 pounds of soybean meal = 39 pounds of soy flour = 20 pounds of soy protein concentrate = 11.8 pounds of isolated soy protein

    Also: Assume that the tenure of the futures contract = 3 months

    Using the data above assess the exposure to volatile commodity prices and design hedging strategies for the following entities.

    (a) A Canadian Soybeans Farmer with an output of 2,000,000 tonnes whose harvest is expected in June 2020. [5 marks]

    (b) An international stock feed processing company with 180,000,000 Tonnes of Soybean Meal based output per year. [5 marks]

    (c) Outline the challenges faced in trying to achieve a perfect hedge in the above two cases.
    [4 marks]
    (d) Describe how a cross hedge could be achieved for each of the above. [4 marks]

    (e) Given the above forecast prices, evaluate the most profitable of the three possible hedges for the farmer. [7 marks]

    October 20, 2020 at 10:15 am #590731
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Please do not post the same post twice.

    See my answer to your other posting of this.

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • The topic ‘commodity hedging’ is closed to new replies.

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