Suppose each orange juice futures contract is for 15,00015,000 pounds of orange juice and the current futures price is F_0 = 118.65F0?=118.65 cents-per-pound. Assuming that the farmer has enough cash liquidity to fund any margin calls, what is the risk-free price that she can guarantee herself.

Question 3

Hedging using futures

Suppose a farmer is expecting that her crop of oranges will be ready for

harvest and sale as 150,000150,000 pounds of orange juice in 33

months time. Suppose each orange juice futures contract is for 15,00015,000

pounds of orange juice and the current futures price is F_0 = 118.65F0?=118.65 cents-per-pound.

Assuming that the farmer has enough cash liquidity to fund

any margin calls, what is the risk-free price that she can guarantee herself.

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