Wilmington Wire Company makes gold plated wire for the jewelry and electronic industries. Industry practice is to offer both date-of-shipment
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Wilmington Wire Company makes gold plated wire for the jewelry and electronic industries. Industry practice is to offer both date-of-shipment and date-of-order pricing at the customer's preference. Moreover, the customer may select the pricing method at the time of shipment. Since the raw metal is expensive, comprising anywhere from 80-98% of all costs of producing a product, and the prices are volatile, a drop in the price of gold between order and delivery dates could be disastrous. Company practice is to purchase gold to cover an order immediately after the order is received. If gold options, both puts and calls are traded, describe a hedging procedure that would eliminate Wilmington's risk.
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Chapter # 13
Section: Exercise Questions
Posted Date: September 24, 2023 12:17:39