Draw the payoff diagrams after hedging the price

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Reference no: EM132811081

Problem 1: Cofarm is a coffee export firm. The firm expects to produce 5000kg of coffee in 6 months. It wants to hedge its coffee selling price using futures. The cost for producing a kilogram of coffee is $20. The spot and 6 month futures price of coffee are $45 and $46 dollar. Draw the payoff diagrams after hedging the price. You should include the underlying position, futures position and the final position.

Problem 2: What is the payoff if gold price surges to 55 at maturity of the futures contract? What if coffee price drops to 40?

Reference no: EM132811081

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