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Calculate alex profit and loss form hedging strategy

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Reference no: EM132982331

Today, September 2021 the upward in the market has attract the traders to grab the opportunity to enter in the futures market. The expert in the market assumed that the economy will slowly rise in three months later. Therefore, Alex as a dealer in his company try to protect his client portfolios in crude palm oil industry. He enters the market today for the contract between today and December. His client has 500 tonnes of physical CPO.

As in September 2021 in cash market the CPO price is RM1345, while September CPO futures is RM1320, October CPO futures is RM1370, November CPO futures is RM1410 and December CPO futures is RM1445. Assume in December 2021, the CPO futures price as spot month is RM1435, next month is RM1527 and the next one month is RM1564 and the next two month is RM1633. Current market price is increasing by 2%.

Malaysia Delivery Clearing House (MDCH) currently is charging the cost of storage at RM3 per month and the interest rate for borrower is 5.5%.

Required:

Problem A) Calculate Alex profit/loss form hedging strategy.

Problem B) Differentiate the execution of forward market and futures market. May support with any strategy(s). Contrast the benefits or the disadvantageous of both markets.

Reference no: EM132982331

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