Refer to Figure 24.6 to answer this question. Suppose today is May 25, 2018, and...
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Refer to Figure 24.6 to answer this question. 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 and each contract has 100 ounces of gold.
a. How could you use gold futures contracts to hedge your risk exposure? What total value would you be effectively locking in considering the required amount of gold in your contract? (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.)
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