Starco Corp. wishes to purchase 5,000 shares of Gertrom Ltd., a publicly-traded company. Starco contracts to buy the shares from a related party, Unit Ltd., for \(\$ 62\) per share in 90 days' time. The fair value was \(\$ 62\) per share on this day. One month later, at year-end, the fair value of the Gertrom shares is \(\$ 54\) per share, and it is \(\$ 55\) per share at the end of 90 days. At that time, the shares are bought and the contract is closed out.

Required:

1. Is this a forward contract or a futures contract? Explain.

2. What risk is the company hedging?

3. Prepare journal entries to record the inception of the contract, the change in its fair value at year-end, and its maturity.