ANTICIPATORY HEDGING WITH TREASURY BILLS: THE CASE OF A BANK FOR COOPERATIVES

Authors:
Severn, Alan K.
Type: Journal Article
Journal title: Western Journal of Agricultural Economics>Volume 10, Number 02, December 1985
Year of publication: 1985
Source: AgEcon
Collected from: AGRIS
Subject:
cooperatives
agribusiness and cooperatives
Description:

Agricultural cooperatives find it difficult to forecast their interest costs and net income. If input and output prices are fixed, anticipatory hedging of future interest costs is appropriate. Banks for Cooperatives obtain funds in maturities longer than the three months of Treasury bills. Hence, anticipatory hedging of interest rates may require selling a "strip" of more than one Treasury bill futures contract. Adapting Peck's model of hedges against forecast error, hedge ratios generally exceed one-for-one, "naïve" hedging, with effectiveness generally above 95 percent. Hedges closed out just before a delivery date have the highest effectiveness.

 

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