(Answered) Hedge the price risk

Management Studies

Problem: A mining company will be selling 100 ounces of gold in December, and wishes to hedge the price risk.

a. A forward contract is available for December gold for $1400. If the company is going to hedge with the forward contract, will it enter the contract long or short? How does this contract hedge price risk?

b. A put option is also available for December gold at a strike price of $1400 and a premium of $70. How does this option hedge price risk? Be detailed in your response and provide examples also.

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Business Management, Management Studies

Category:- Business Management
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