Is mike hedging or speculating

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Problem:

Mike Brooks is an art collector in central Hobart, currently prices of local veterans' sculptures have skyrocketed. Today, Mike buys a sculpture of the first female lieutenant colonel for $795,500. Last 2-year, he bought the sculpture of the first General for $305,000, which is currently worth $1,250,000 in the spot market. Mike believes that prices will continue to increase and as such has decided to hold the assets and sell later in 5-year time.

Is Mike hedging or speculating? Explain

Briefly explain how Mike can use derivatives to hedge his exposure, highlight the direct and indirect cost to his strategy.

Reference no: EM133275908

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