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What is the profit or loss on futures position

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Suppose today is August 13, 2021, and your firm is a gold miner that expects to sell 1,200 ounces of gold in February 2022. You would like to lock in your sales today, because you're concerned that gold prices might go down between now and February 2022.

i) How could you use gold futures contracts to hedge your risk exposure? Draw your risk profile and the payoff profile of the futures position you will use.

ii) Suppose you use February 2022 futures for $1,839.21 to hedge your risk, and gold prices are $1,885 per ounce in February when the contract matures. What is the profit or loss on your futures position? Explain how your futures position has eliminated your exposure to price risk in the gold market.

Reference no: EM133004428

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