Question: The Health Bracelet Company will need 1 000 kg of copper

The Health Bracelet Company will need 1,000 kg of copper in one year and is trying to decide between buying the copper on the spot market and using a forward contract. The spot price of copper is $15 per kilogram. The forward price is $19 per kilogram. Health Bracelet will need to rent a warehouse space to store the copper at a cost of $100 per month. Health Bracelet is able to borrow and lend at 4 percent per year. Should Health Bracelet buy its copper using the spot market or the forward market? Explain.

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  • CreatedFebruary 25, 2015
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