Question: Question # 1 It is January 15 and a silver fabricator knows that it will require 100,000 ounces of silver on May 15 to meet

Question # 1

It is January 15 and a silver fabricator knows that it will require 100,000 ounces of silver on May 15 to meet a certain contract. The spot price of the silver is $26.24 per ounce and the May futures price on silver is $26.50 per.

- What is the asset to be hedged?

- What is hedging asset?

- Will he purchase in both contracts?

- How can the silver fabricator hedge the price rise risk and Locks-In the prices?

- Suppose that price of the silver is $26.80 per ounce on May 15, what is the total amount realized by the producer using hedging strategy?

- Suppose that price of the silver is $26.20 per ounce on May 15, what is the total amount realized by the producer using hedging strategy?

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