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Company Z wishes to hedge its exposure to cotton with corn futures over the next three months

Finance

Company Z wishes to hedge its exposure to cotton with corn futures over the next three months. The market price of cotton per ton and future price of corn per ton for 8 months are given. The company has an exposure to the price of 1000 tons of the cotton. Each futures contract is on 42 tons of corn. How many corn contracts should be traded? (Answer is rounded)

Month Corn future price per ton Cotton price per ton
1 175 1770
2 165 1776
3 172 1788
4 182 1791
5 177 1789
6 189 1885
7 179 1902
8 184 1910

Which answer:

A . 88

B. 133

C. 41

D. 24

E. 48

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