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Anticipatory Hedging With Treasury Bills: The Case Of A Bank For Cooperatives

Author

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  • Severn, Alan K.

Abstract

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.

Suggested Citation

  • Severn, Alan K., 1985. "Anticipatory Hedging With Treasury Bills: The Case Of A Bank For Cooperatives," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 10(2), pages 1-10, December.
    • Handle: RePEc:ags:wjagec:32304
    DOI: 10.22004/ag.econ.32304
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    Cited by:

    1. J. C. O'neil & J. T. Akridge & W. D. Dobson, 1991. "Hedging federal farm credit bonds," Agribusiness, John Wiley & Sons, Ltd., vol. 7(6), pages 563-576.

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    Keywords

    Agribusiness; Financial Economics;

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