1a. A gold mining firm that produces gold will have gold ready for sale and deli
ID: 2620204 • Letter: 1
Question
1a. A gold mining firm that produces gold will have gold ready for sale and delivery in 6 months from now, but expects or forecasts that prices will fall within the next 6 months and would like to lock into the current price as closely as possible to manage its revenue and operating profit margin. Set up a trading strategy using futures contracts only considering the information provided in table below:
Time
Cash Market Price of Gold per unit
Futures Market Price of Gold per unit
Now
$1223 Cash or Spot price
$ 1225 Futures price
Later:6 months from now
$1219 Cash or Spot price
$1221 Futures price
Show your work and actions in table below
Time
Actions in the cash or spot market
Actions in the futures market
Now
Later: 6 months from now
Results
Show the combined results of your actions and calculate the net, actual, final result in dollars per unit to the gold producer below here.
1a. A gold mining firm that produces gold will have gold ready for sale and delivery in 6 months from now, but expects or forecasts that prices will fall within the next 6 months and would like to lock into the current price as closely as possible to manage its revenue and operating profit margin. Set up a trading strategy using futures contracts only considering the information provided in table below:
Time
Cash Market Price of Gold per unit
Futures Market Price of Gold per unit
Now
$1223 Cash or Spot price
$ 1225 Futures price
Later:6 months from now
$1219 Cash or Spot price
$1221 Futures price
Explanation / Answer
Actions in the cash
or spot market
Actions in the future
market
TimeActions in the cash
or spot market
Actions in the future
market
Now Go short Go short 6 months from now buy buy Results 1223 - 1219 = $4 gain per unit 1225 - 1221 = $4 gain per unitRelated Questions
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