Evaluating his hedges

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Reference no: EM131813110

Joe Merchant is evaluating his hedges. He currently has all of his hedges against CZ17 for the grain purchases he knows that he will be storing and shipping during June 2018. He is trying to determine whether he should roll his hedges or not. Use the information below to answer all the questions. CZ17 is 3.90, CN18 is 4.00. The interest rate on his money is 4.5% and the storage cost per month is 4.00 cents per month.

1. How much is the current carry between CZ17 and CN18?

2. How much is full carry between CZ17 and CN18?

3. What % of full carry is present between CZ17 and CN18 currently?

4. if you are hedged in CZ16 should the hedge be rolled to CN17. Discuss why you believe the hedge should or shouldn’t be rolled.

Reference no: EM131813110

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