On NOV 22, 17 a Gold Trader (GT) entered several contracts as follows: 
Contract 1: To purchase 100,000 ounces of gold from a Gold Mining Company (GMC)
on MAR 14, 18 for the spot price on the purchase day.
Contract 2: To sell 100,000 ounces of gold on MAR 14, 18 to Gold Jewelry Designer
(GJD). GT agrees with GJD that the selling price will be the current, NOV 22, 17, price of the NYMEX gold futures for APR 18 MINUS some discount. The discount is yet to be agreed upon between GT and GJD.
On NOV 22, 17 GT open a hedge on NYMEX to hedge the MAR 14, 18 spot trade with GMC using 1,000 NYMEX gold futures for delivery on APR 18. Each gold futures covers 100 ounces.
Use a time table to show all the cash flows associated with all the above contracts on NOV 22, 17 and on MAR 14, 18.  Use our usual notations when prices are not given. On NOV 22, 17 the gold futures for delivery on APR 18 was trading for $1,502/ounce and the spot price was $1,491.30/ounce. 
Describe a SWAP strategy that GT could employ with a swap dealer such that GT is guaranteed a profit of $600,000, while giving GJD a $4/ounce discount.

Answer rating: 100% (QA)

Gold Transaction Timeline and Swap Strategy Date Contract Cash Flow Notes NOV 22 2017 Buy Contract w... View the full answer