Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter's production of catalytic converters. It buys 3-month futures contracts for 10,000 ounces at a price of $1,650 per ounce.
a. Suppose the spot price of platinum falls to $1,500 in 3 months' time. Does Phoenix have a profit or loss on the futures contract?
b. Has it locked in the cost of purchasing the platinum it needs?
c. How does your answer to part (a) change if the spot price of platinum increases to $1,800 after 3 months?
d. How does your answer to part (b) change?