Suppose today is May 25, 2018, and your firm is a jewellery manufacturer that needs 1,500...

 

Transcribed Image Text:

Suppose today is May 25, 2018, and your firm is a jewellery manufacturer that needs 1,500 ounces of gold in October for the fall production run. You would like to lock in your costs today, because you're concerned that gold prices might go up between now and October. Assume that the hedge is market to market. a. How could you use gold futures contracts to hedge your risk exposure? What price would you be effectively locking in? (Omit $ sign in your response.) Total cost b. Suppose gold prices are $1,090 per ounce in October. What is the profit or loss on your futures position? (Input the amount as positive value. Omit $ sign in your response.) Loss $ Suppose today is May 25, 2018, and your firm is a jewellery manufacturer that needs 1,500 ounces of gold in October for the fall production run. You would like to lock in your costs today, because you're concerned that gold prices might go up between now and October. Assume that the hedge is market to market. a. How could you use gold futures contracts to hedge your risk exposure? What price would you be effectively locking in? (Omit $ sign in your response.) Total cost b. Suppose gold prices are $1,090 per ounce in October. What is the profit or loss on your futures position? (Input the amount as positive value. Omit $ sign in your response.) Loss $

Answer rating: 100% (QA)

a To hedge the risk exposure to gold prices you can use gold futures contracts Heres how you can do ... View the full answer