What strategy did the gold mining company design yesterday

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Yesterday, October 20, 2008 a gold mining company negotiated a contract to sell 10,000 ounces of gold on December 15, 2008. It has been agreed that the price that will apply in the contract is the spot market price on December 15. Gold spot price yesterday was $722.40 per ounce and the gold futures price on the Chicago Mercantile Exchange (CME) for December delivery was $728.50. Each futures contract on CME is for delivery of 100 ounces.

What strategy did the gold mining company design yesterday, immediately after it negotiated the contract above, to hedge its gold price risk exposure?

What is the approximate price per ounce that the company locked in?

Show how this price is locked in regardless of the gold spot price on December 15.

Reference no: EM132389701

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