Ostrich Meat Future Contract

1074 words 5 pages
Future contract #1 Ostrich meat 1. This is a future contract of 60,000 lbs. ostrich meat traded in $0.0001/lb. in Dec., Mar., Jul. and Sep. The seller has to deliver USDA frozen 75-100 pound Grade A ostrich carcasses. The daily Price cannot be $0.05/lb. above or below the previous day’s settlement price.

2. i) According to world – ostrich organization (http://www.world-ostrich.org/demand.htm), the current demand for ostrich meat is way far more than supply. Therefore, there will be a constantly increase in the price of ostrich meat. Investors are reluctant to take short positions of ostrich meat futures; however, there would be a lot of people willing to take long positions. Thus, the long positions will be in far excess of short
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2. Some institutional investor such as investment banks and trust institutions that already own a credit card receivable security but expect the future value of security to decline will take a short position of the contract. Some companies have a lot of credit loans to pay, such as insurance company or banks specializing in insurance of credit card will long the contract. For example, when the credit card holder cannot pay the loan, the insurance company has to pay for the credit card receivables; the income from longing the contract can offset part of the payment and reduce default risk. Some active portfolio managers will also take long or short positions of the contract.

3. i) The size of the contract can meet the different needs, which will allow it to succeed. On the one hand, $100,000 is not a big amount; it is affordable for those individual investors. On the other hand, if the institutional investors want to buy larger amount, they can buy more units of the contract. ii) The credit card receivable security future contract is a new kind of future contract. Most of the existing future contract is based on stock index or corporate bonds. This kind of future may help some investor to improve liquidity and can attract new investors in the financial market.

4. i) The type of the credit card receivable is not specified in the contract. The contract does not include where the receivable comes from or what kind