Hedge your salary risk using futures contract

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Reference no: EM131064909

1. Suppose after you graduate, you plan to be a stock analyst for a big financial institution. You know that if the stock market increases in value, your will get a good job with a good salary. If the stock market declines, you will get a job, but the salary will be lower. Can you hedge your salary risk using futures contract?

2. A New Zealand company produces 10,000 ounces of gold per year. It uses a quarter of its production for making gold jewelry sold at a fixed price through stores in Australia and New Zealand, and the rest is sold on the market, where the gold price is determined in US dollars. Australia’s profits are repatriated to New Zealand. The company’s CEO wants to use futures contract to hedge the entire production. He calls you to seek your opinion. Recommend a sensible hedge strategy that would be in line with the CEO’s wishes (assume x is the quantity used for making gold jewelry in the New Zealand).

Reference no: EM131064909

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