a) The basis strengthens unexpectedly. How does it affect the position of a short hedger? (5 marks) b) On March 1 the

[answerhappygod]

a) The basis strengthens unexpectedly. How does it affect
the position of a short hedger?
(5 marks)
b) On March 1 the spot price of a commodity is $20 and the
July futures price is $19. On June 1 the spot price is $24 and the
July futures price is $23.50. A company entered into a futures
contract on March 1 to hedge the purchase of the commodity on June
1. It closed out its position on June 1. What is the effective
price paid by the company for the commodity?
(5 marks)
c) On March 1 the price of a commodity is $300 and the
December futures price is $315. On November 1 the price is $280 and
the December futures price is $281. A producer entered into a
December futures contracts on March 1 to hedge the sale of the
commodity on November 1. It closed out its position on November 1.
What is the effective price received by the producer?
(5 marks)
d) How many types of traders are there in a derivative
security market and who are they?
(5 marks)
e) Suppose that the standard deviation of monthly changes in the
price of commodity A is $2. The standard deviation of monthly
changes in the futures price for a contract on commodity B (which
is similar to commodity A) is $3. The correlation between the
futures price and the commodity price is 0.9. What hedge ratio
should be used when hedging a one month exposure to the price of
commodity A?
(5 marks)