You manufacture gold jewellery for sale to local retail outlets. This upcoming fall you will require 500 troy ounces of gold (1 troy ounce= 31.103 grams) and you would like to hedge your risk of price fluctuations through NYMEX/COMEX. Today's (March) price of gold is US$1,882 per ounce. The settle price on a futures contract to buy gold in August is US$1,895 per ounce. Assume you enter into a futures contract for 500 troy ounces of gold.
a. Assume the price of gold in the cash market, in your region of the country, in August is US$2,250 an ounce. Without taking delivery of your gold through the New York Exchange, close out the futures contract and calculate your gains, losses, and net receipts on the 500 ounces of gold.
b. Assume the price of gold in the cash market, in your region of the country, in April is US$1,525 an ounce. Without taking delivery of your gold through the New York Exchange, close out the futures contract and calculate your gains, losses, and net receipts on the 500 ounces of gold.