You are advising an Australian gold mining company on how to hedge their gold price...
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Accounting
You are advising an Australian gold mining company on how to hedge their gold price risk and foreign exchange risk (gold is priced in USD) using derivatives.
- What are the pros and cons of using exchange traded derivatives versus OTC derivatives?
- Comparing the advantages and disadvantages of options, futures, and forward contracts, which type(s) of contracts would you recommend?
- What factors could contribute to hedging errors if exchange traded derivatives are used for hedging?
- What other factors would you consider when designing the hedging strategy? Are there reasons to deviate from a fully-hedged position?
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