Cooper$$s Copper Roofs $($CCR$)$ has entered into a production contract for a housing development. The contract calls for CCR to install copper roofs on $100$ new homes. Each roof requires $1,000$ pounds of copper. Therefore, CCR will require $100,000$ pounds of copper on September $15$th to meet the contract. At $$1\mathrm{.}20$ per pound for copper, CCR will turn a $$800,000$ profit. CCR will not be able to pass on any changes in the price of copper to the developer. CCR is considering entering into a futures contract to remove price risk from these transactions.

Quotes:

Spot price of copper is $$1\mathrm{.}50$ per lb$.($March $23,2024)$

The September futures price is $$1\mathrm{.}20$ per lb$.$

Contract size $25,000$ lbs$.$

A$.$ Draw an exposure diagram showing CCR$$s exposure to copper price fluctuation.

B$.$ What should CCR$$s hedging strategy be$?$ Be specific on any positions $($and when they should be entered$)$ that CCR should take in a futures contract.

C$.$ Based on the position taken in the futures contract, what happens to CCR if the spot price of copper on September $15$th is $$2\mathrm{.}00?$

D$.$ Based on the position taken in the futures contract, what happens if the spot price of copper on September $15$th is $$1\mathrm{.}00?$