11Speculation in futures markets is pure gambling. It is not in the public interest to allow speculators to trade on a futures exchange11. Discuss this view point.
What do you think would happen if an exchange started trading a contract in which the quality of the underlying asset was incompletely specified?
Cattle farmer expects 120,000 lbs live cattle to sell in 3 months. CME live-cattle futures are for delivery of 40,000 lbs of cattle. How can the farmer hedge with the contract? Farmer’s hedging pros and cons?
Long, 1 yr forward, no dividend stock, S0 = $40,
r = 10%/yr with continuous compounding.
1. What is the forward price? Initial value of forward contract?
2. Six months later, S6 = $45, r remains 10%/yr . What is the forward price? Value of forward contract?
