1. (0.5 point) As a copper tube manufacturer, you will need 50,000 pounds copper in December. The current futures price is $2.5 per pound. The copper futures contract size is 25,000 pounds in the CME groups exchanges.

(a) What is the risk?

(b) How would you hedge with futures? (i.e. buy or sell how many contracts? Please show the calculation)

(c) If the December spot price is $2.6 per pound, what is the cost of the hedged copper? What if the December spot price is $2.4 per pound?

(d) Is the cost with hedge always less than that without hedge? In which case, it is better not to hedge.