Cooper's Copper Roofs (CCR) has entered into a production contract for a housing development.  The contract calls for CCR to install copper roofs on 100 new homes.  Each roof requires 1,000 pounds of copper.  Therefore, CCR will require 100,000 pounds of copper on September 15^th to meet the contract.  At $1.20 per pound for copper, CCR will turn a $800,000 profit.  CCR will not be able to pass on any changes in the price of copper to the developer.  

CCR is considering entering into a futures contract to remove price risk from these transactions. 

 

1) What should CCR's hedging strategy be? 

Be specific on any positions (and when they should be entered) that CCR should take in a futures contract.     

CCR should take on this future contract quoted as it will help them in making 

 

2) Based on the position taken in the futures contract, what happens to CCR if the spot price of copper on September 15^th is $2.00?

 

3) Based on the position taken in the futures contract, what happens if the spot price of copper on September 15^th is $1.00?

Answer rating: 100% (QA)

CCRs hedging strategy should be to enter into a long futures position for 100000 pounds of copper wi... View the full answer