a. In March, spot price of CPO=RM975; storage cost RM5 per month; risk free rate 5%. Calculate the upper limit of Apr futures. b. Suppose you are the purchasing officer for an oleochemical manufacturer and have just placed an order of 1,000 metric tons of crude palm kernel oil to be delivered to your factory on 5 October. The price of the oil will be prevailing spot price on that day. Fearing adverse price movement, you decided to fully hedge the company's exposure using the FPKO contract. The current spot price of crude palm kernel oil is RM2,045 while the October FPKO is trading at RM2,050.
i. Will you buy or sell futures?
ii. How many contracts is needed to fully hedge the above exposure? c. In October, you closed-out your hedge at RM2,055 while the spot price of crude palm kernel oil is RM2,049.
i. Calculate the profit or loss on the underlying physical exposure as at 5Oct. ii. Calculate the profit or loss in the futures hedge as at 5Oct.
iii. Calculate the effective price paid for the 1.000 metric tons of crude palm kernel oil on 5 Oct