In January, the May futures price of copper is $3.06 per pound and the spot price is $3.00. A company needs 260,000 pounds copper late April and decides to trade in May futures to hedge the price risk of copper. On April 27, the company closes its positio
In January, the May futures price of copper is $3.06 per pound and the spot price is $3.00. A company needs 260,000 pounds copper in late April and decides to trade in May futures to hedge the price risk of copper. On April 27, the company closes its position in the futures market when the spot price is $3.04 per pound, and the May futures price is $3.05. What is the total amount paid for the copper after taking into account the gains or losses on the futures contracts? Each copper futures contract is for the delivery of 25,000 pounds of copper. (The number of futures contracts traded should be rounded to the nearest integer.)
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In January, the May futures price of copper is $3.06 per pound and the spot price is $3.00. A company needs 260,000 pounds copper late April and decides to trade in May futures to hedge the price risk of copper. On April 27, the company closes its positio
9. Hedging strategy to protect against falling prices Price fluctuations in commodities can have significant consequences...
9. Hedging strategy to protect against falling prices Price fluctuations in commodities can have significant consequences for companies, especially if the fluctuation involves a prime raw material for a company. Different companies will adopt different strategies to manage the risk in price fluctuations, indluding adjusting the timing of their commodity purchases, maintaining a safety stock of their raw materials, and hedging Consider the case of Cranked Coffee Company, a large copper-producing company The company's cost of producing copper is about...
It is now October 2016. A company anticipates that it will purchase 1 million pounds of...
It is now October 2016. A company anticipates that it will purchase 1 million pounds of copper in each of February 2017, August 2017, February 2018, and August 2018. The company has decided to use the futures contracts traded by the CME Group to hedge its risk. One contract is for the delivery of 25,000 pounds of copper. The initial margin is $2,000 per contract and the maintenance margin is $1,500 per contract. The company's policy is to hedge 80%...
As of January 2019, Cox Corp. anticipates purchasing 100,000 pounds of copper in April 2019. On...
As of January 2019, Cox Corp. anticipates purchasing 100,000 pounds of copper in April 2019. On January 1, 2019, Cox enters into a copper futures contract. Terms of the contract were as follows: Contract size: 100,000 pounds of copper Delivery price: $2.60 per pound Expiration: April 1, 2019 Spot prices for copper (per pound) over the contract period were the following: January 1, 2019 March 31,2019 Spot_ price $2.60 $2.80 On April 1, 2019, Cox Corp. purchased the needed 100,000...
9. Hedging strategy to protect against falling prices Price fluctuations in commodities can have significant consequences for companies, especially if the fluctuation involves a prime raw material for a company. Different companies will adopt different strategies to manage the risk in price fluctuations, indluding adjusting the timing of their commodity purchases, maintaining a safety stock of their raw materials, and hedging Consider the case of Cranked Coffee Company, a large copper-producing company The company's cost of producing copper is about...
It is now October 2016. A company anticipates that it will purchase 1 million pounds of copper in each of February 2017, August 2017, February 2018, and August 2018. The company has decided to use the futures contracts traded by the CME Group to hedge its risk. One contract is for the delivery of 25,000 pounds of copper. The initial margin is $2,000 per contract and the maintenance margin is $1,500 per contract. The company's policy is to hedge 80%...
As of January 2019, Cox Corp. anticipates purchasing 100,000 pounds of copper in April 2019. On January 1, 2019, Cox enters into a copper futures contract. Terms of the contract were as follows: Contract size: 100,000 pounds of copper Delivery price: $2.60 per pound Expiration: April 1, 2019 Spot prices for copper (per pound) over the contract period were the following: January 1, 2019 March 31,2019 Spot_ price $2.60 $2.80 On April 1, 2019, Cox Corp. purchased the needed 100,000...
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