Question: Alpha Electronics plans to purchase electronic components in six months. It enters into a forward contract to buy 1 0 , 0 0 0 units

Alpha Electronics plans to purchase electronic components in six months. It enters into a forward contract to buy 10,000 units at $50 each. The current spot price is $55. Additionally, Alpha hedges using a futures contract, agreeing to buy 10,000 units at $52. The actual spot and futures prices in six months are $58 and $55, respectively.
Calculate and interpret the total cost savings or additional expenses from using the forward contract.
Calculate and interpret the total cost savings or additional expenses from using the futures contract.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

Azus Electronics plans to purchase electronic components in six months. It enters into a forward contract to buy 10,000 units at $50 each. The current spot price is $55. Additionally, Azus hedges...

Q:

THIS QUESTION IS DUE IN EXACTLY 1 HOUR AND 45 MINUTES. I WILL PAY EXTRA 10 DOLLARS IN TIP IF SOMEONE TYPES THE EXACT ANSWER REQUESTED. PLEASE RESPOND TO THE EACH AND EVERY QUESTION IN A TOTAL OF 3-4...

Q:

Evaluate the potential gains and losses for forwards,future,call options,put options and swaps. Outline and describe the different risks that each type of derivative contract faces. Describe...

Q:

QUESTION 1(12 marks; 22 minutes) Poullus Limited (PL), a high-tech electronics manufacturing company, is currently operating at 70% of its maximum capacity. A new customer in Lesotho has asked PL to...

Q:

Technology Plus manufactures small private-label electronic products, such as alarm clocks, stopwatches, kitchen timers, calculators, and automatic pencil sharpeners. It sells some of the products as...

Q:

Please fully answer the following questions about the case in your report: Summarize and discuss the core issue in the case. Do not repeat the entire case details but only pertinent information at...

Q:

managerial accounting Future Technologies Inc. (FTI) Future Technologies Inc. (FTI) manufactures small White-label electronic products, such as outdoor blue- tooth speakers, fitness watches,...

Q:

managerial accounting Future Technologies Inc. (FTI) Future Technologies Inc. (FTI) manufactures small White-label electronic products, such as outdoor blue- tooth speakers, fitness watches,...

Q:

Question 3 What concept explains the reduction of unsystematic risk in a portfolio through the inclusion of a large number of diverse investments? A . Efficient frontier B . Capital allocation line C...

Q:

Part I: Answer each question thoroughly, read over each problem, discuss the pros and cons of each option, and select the best option including your justification and your own opinion. H & I Advanced...

Q:

estion 39 The minimum numbers of functions need to be presented in c++ progtam is 0? yet vered Select one: ked out of O a. False Flag question O b. True

Q:

Evaluate, in spherical coordinates, the triple integral of f(p,0,4) = sin o, over the region 0

Q:

Safety is the least concern when planning and executing a crime scene search. True False

Q:

Distinguish among spoilage, rework, and scrap.

Q:

Table P-10 contains a time series of 80 observations. Using a computer program for ARIMA modeling, obtain a plot of the data, the sample autocorrelations, and the sample partial autocorrelations....

Q:

Felding Chemicals has a mixing department and a refining department. Its process- costing system in the mixing department has two direct material cost categories (chemical P and chemical Q) and one...

Q:

Candid, Inc. is a manufacturer of digital cameras. It has two departments: assembly and testing. In January 2017, the company incurred $800,000 on direct materials and $805,000 on conversion costs,...

Q:

1. Describe the product that is being produced and the company that makes it. 2. Summarize the production process that is used in making this product. 3. What raw materials are used to make this...

Q:

Design a minimum-mass symmetric three-bar truss (the area of member 1 and that of member 3 are the same) to support a load P, as was shown in Fig. 2.9. The following notation may be used: Pu = P cos...

Q:

What information do the mean and the standard deviation of a sampling distribution provide about the accuracy of an estimator?

Q:

How is the bias of an estimator ???? of a parameter ???? computed?

Q:

What is the sampling distribution of a statistic?