Peruvian organic coffee price

Assume that in 4 months the cost of a pound of Peruvian organic coffee will be either $2.5 or $4.5. The current price is $3.5 per pound.

(a) What are the risks faced by a coffee chain who is a large purchaser of coffee?

(b) What are the risks faced by a Peruvian coffee farmer?

(c) If the delivery price of coffee turns out to be $4.5, should the farmer have forgone entering into a futures contract? Why or why not?

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