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

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.


Issue Date:
1985-12
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/32304
Published in:
Western Journal of Agricultural Economics, Volume 10, Number 2
Page range:
413-422
Total Pages:
10




 Record created 2017-04-01, last modified 2017-04-04

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)