What is the impact of the strategy

Assignment Help Financial Management

Reference no: EM131235711

It is now October 2010. A company anticipates that it will purchase 1 million pounds of copper in each of February 2011, August 2011, February 2012, and August 2012. The company has decided to use the futures contracts traded in the COMEX division of 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% of its exposure. Contracts with maturities up to 13 months into the future are considered to have sufficient liquidity to meet the company's needs. Devise a hedging strategy for the company. (Do not make the ‘‘tailing'' adjustment described in Section 3.4.)

Assume the market prices (in cents per pound) today and at future dates are as in the following table. What is the impact of the strategy you propose on the price the company pays for copper? What is the initial margin requirement in October 2010? Is the company subject to any margin calls?

Reference no: EM131235711

Questions Cloud

Supply chain management for the focal firm : Examine the problems and causes that may contribute to low quality throughout the supply chain. Soltani, et al. (2011) recommended that the leadership in the focal firm or buyer select good partners, ensure cooperation, and motivate loyalty to the..

What did you learn about the innocence project : What did you learn about the Innocence Project and eyewitness identification? What surprised you the most? What steps, if any, do you think should be taken to make the identification process more reliable?

Determinants of the price elasticity of demand : Analyze the determinants of the price elasticity of demand and determine if each of the following products are elastic or inelastic: Bottled water and Toothpaste

Draw the directed graph of relation : Given the set A = {1, 2, 3} and the set S = {(x, y) | x and y in A}. Consider the relation ≤ defined on S as follows: ((x1, y1) ≤ (x2, y2) if x1 ≤ x2 and y1 ≤ y2. Draw the directed graph of this relation. Show that it is a partial order. Explain why ..

What is the impact of the strategy : What is the impact of the strategy you propose on the price the company pays for copper? What is the initial margin requirement in October 2010?

Studying new material had better scores : Weinstein, McDermott, and Roediger (2010) report that students who were given questions to be answered while studying new material had better scores when tested on the material compared to students who were simply given an opportunity to reread th..

Margins and breakeven analysis : John has an idea for a new style of bicycle that he would like to introduce to the market. The manufacturing cost of the bicycle is $100 including packaging and shipping to wholesalers who will sell the product to retail stores. What would be a reaso..

What safeguards could be implemented : Should companies automatically grant adjustments, For example, some customers buy a video camera or a dress for a special event and return the product afterwards. What safeguards could be implemented

What are the money costs operations chc at its current level : Supplies are $20 per patient per month. What are the money costs operations CHC at its current level? Approximately how much would it cost to operate CHC at a level of 1300 visits per month?

User Account

All Pages