What is main benefit you get from hedging your selling price

Assignment Help Financial Management

Reference no: EM132031854

You = gold producer, worried about the gold prices in the future. In May , you buy six September gold futures contracts (short position) of 100 ounces each, with an exercise price of $860.00 per ounce. Ignore transaction costs.

i) profit/loss be for your entire position, if gold prices turn out to be $900 per ounce at expiration?

ii) profit or loss be for your entire position if gold prices turn out to be $820 per ounce at expiration?

iii) Based on your answer to question (i) and (ii) were you right or wrong to get the future contract? What is the main benefit you get from hedging your selling price?

iv) What would the profit or loss be for your entire position if you had a put option, instead of a futures contract, with a strike price of $860 per ounce, and the price turns out to be $900 per ounce at expiration?

v) State one advantage and one disadvantage of an option contract when compared to a futures contract?

Reference no: EM132031854

Questions Cloud

What you hope to achieve in the graduate program : How your past education and other experiences have prepared you to be successful in the graduate program. What you hope to achieve in the graduate program

Exceeds the sum of cash-accounts receivable and inventory : If a firm's accounts payable, its only current liability, exceeds the sum of cash, accounts receivable and, inventory,

Assuming perfect capital markets : what should its first ex dividend price assuming perfect capital markets?

What is the cost of cash offer and that of equity offer : What is the cost of cash offer and that of Equity offer? What is the NPV of the cash offer?

What is main benefit you get from hedging your selling price : Based on your answer to question (i) and (ii) were you right or wrong to get the future contract? What is main benefit you get from hedging your selling price,

What is the percentage change in price of these bonds : What is the percentage change in the price of these bonds? What if interest rates suddenly fall by 2 percent instead?

Argentina and ecuador to prevent the crisis occurring again : What would you do differently in the case of Argentina and Ecuador to prevent the crisis occurring again?

Coup affect auto and other american and british companies : How will the coup affect the auto and other American and British companies doing business in Thailand?

Explain factorial design with three independent variables : Lay out the design for two between-subjects experiments: an experiment involving an experimental group and a control group.

User Account

All Pages