Today is October 28, 2016. You anticipate that your company (General Motors) will purchase 1 million...

  

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Today is October 28, 2016. You anticipate that your company (General Motors) will purchase 1 million pounds of Platinum (for catalytic converter) on February 28, 2017, August 28, 2017, February 29, 2018, and August 28, 2018. You collected the prices of CME futures contracts of Platinum while you are planning for a hedging strategy. Month of Futures Oct 28, Feb 28, Aug 28, Feb 28, Aug 28, Delivery 2016 2017 2017 2018 2018 Mar 2017 Futures Price $372.3 $369.1 Sep 2017 Futures Price $372.8 $370.2 $364.8 Mar 2018 Futures Price $370.7 $364.3 $376.7 Sep 2018 Futures Price $364.2 $376.5 $388.2 One contract is for the delivery of 25,000 pounds of platinum. Your boss told you that GM only needs to hedge 80% of its exposure, meaning to hedge 800,000 pounds (rather than 1 million pounds) of platinum in each month. Therefore, you need 32 futures contracts (800,000/25,000 = 32) to hedge the delivery of 800,000 pounds of platinum (80% of your exposure). Traders at the CME desk told you that futures contracts with maturities up to 13 months into the future have sufficient liquidity to meet the GM's needs. (a) For the planned purchase of Platinum in the four coming dates, will you LONG or SHORT the 32 futures contracts today (on October 28, 2016). Plus, which month's futures contract should you buy (March 2017, Sep 2017, Mar 2018, or Sep 2018)? Hints: Only futures with maturities less than 13 months will have sufficient liquidity. ANSWER: These buy orders are the ones that you need to execute on October 28, 2016: Planned Purchase Date of Platinum February 28 2017 August 28, 2017 February 28, 2018 August 28, 2018 Month of Futures Delivery Long or Short Number of Contracts (b) On February 28, 2017, what do you need to do in regards to the forthcoming expiration of Mar 2017 futures? Do you need to close or roll your futures contracts to a newer deliver date? (c) On August 28, 2017, what do you need to do in regards to the forthcoming expiration of Sep 2017 futures? Do you need to close or roll your futures contracts to a newer deliver date? (d) On February 28, 2018, what do you need to do in regards to the forthcoming expiration of Mar 2018 futures? Do you need to close or roll your futures contracts to a newer deliver date? Today is October 28, 2016. You anticipate that your company (General Motors) will purchase 1 million pounds of Platinum (for catalytic converter) on February 28, 2017, August 28, 2017, February 29, 2018, and August 28, 2018. You collected the prices of CME futures contracts of Platinum while you are planning for a hedging strategy. Month of Futures Oct 28, Feb 28, Aug 28, Feb 28, Aug 28, Delivery 2016 2017 2017 2018 2018 Mar 2017 Futures Price $372.3 $369.1 Sep 2017 Futures Price $372.8 $370.2 $364.8 Mar 2018 Futures Price $370.7 $364.3 $376.7 Sep 2018 Futures Price $364.2 $376.5 $388.2 One contract is for the delivery of 25,000 pounds of platinum. Your boss told you that GM only needs to hedge 80% of its exposure, meaning to hedge 800,000 pounds (rather than 1 million pounds) of platinum in each month. Therefore, you need 32 futures contracts (800,000/25,000 = 32) to hedge the delivery of 800,000 pounds of platinum (80% of your exposure). Traders at the CME desk told you that futures contracts with maturities up to 13 months into the future have sufficient liquidity to meet the GM's needs. (a) For the planned purchase of Platinum in the four coming dates, will you LONG or SHORT the 32 futures contracts today (on October 28, 2016). Plus, which month's futures contract should you buy (March 2017, Sep 2017, Mar 2018, or Sep 2018)? Hints: Only futures with maturities less than 13 months will have sufficient liquidity. ANSWER: These buy orders are the ones that you need to execute on October 28, 2016: Planned Purchase Date of Platinum February 28 2017 August 28, 2017 February 28, 2018 August 28, 2018 Month of Futures Delivery Long or Short Number of Contracts (b) On February 28, 2017, what do you need to do in regards to the forthcoming expiration of Mar 2017 futures? Do you need to close or roll your futures contracts to a newer deliver date? (c) On August 28, 2017, what do you need to do in regards to the forthcoming expiration of Sep 2017 futures? Do you need to close or roll your futures contracts to a newer deliver date? (d) On February 28, 2018, what do you need to do in regards to the forthcoming expiration of Mar 2018 futures? Do you need to close or roll your futures contracts to a newer deliver date?