Which you want to hedge with either forwards or futures

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You own 30,000 ounces of silver, which you want to hedge with either forwards or futures. Silver can be borrowed or lent for a rate of 4.50% (which includes any storage costs). The riskless interest rate is 1.30%. Both rates are continuously compounded. Assume both rates are constant for this problem.

1 How much silver should you sell in one month forward to have an instantaneously riskless position?

2. How many one-month futures contracts (each for two ounces) could you short instead?

3. Suppose you don't actually own the silver, but instead have a one-year long forward for 30,000 ounces- Now how many one-month futures would you sell to make your position instantaneously riskless?

4. Would your position in have to be adjusted as time passed? If so, how?

Reference no: EM133306366

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