Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in
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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 three-month futures contracts for 10,000 ounces at a price of $1,300 per ounce.
a. Suppose the spot price of platinum falls to $1,200 in three months’ time. Does Phoenix have a profit or loss on the futures contract? Has it locked in the cost of purchasing the platinum it needs?
b. How do your answers change if the spot price of platinum increases to $1,400 after three months?
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Related Book For
Principles of Corporate Finance
ISBN: 978-1260013900
13th edition
Authors: Richard Brealey, Stewart Myers, Franklin Allen
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