Al. For each of the following statements indicate whether the statement is true or false and explain why. a) Ezra believes that in the next six months the price of gold will rise from its current spot price of USD 1,300 per ounce. If Ezra is willing to put his belief to the test, he could go short on a six-month forward contract on gold. b) Sophie is a wheat farmer and expects to harvest her wheat in four months' time. However, she has recently become concerned that the wheat price is falling and she wishes to hedge against the price of wheat falling further before she harvests the wheat. In order to hedge this exposure using a forward contract, she could go short on a four- month futures contract on wheat. c) Forward contracts are superior to futures contracts. In a forward contract, I get to specify the underlying asset and the maturity date, so I can choose exactly what I want but if I use a futures contract, I must choose from a pre-specified list. d) You should never use options to hedge. Instead, use forward contracts: they can also be used to hedge and they cost almost nothing whereas an option can cost a lot. e) Julia believes that Rio Tinto may soon announce a takeover of BHP. If the takeover goes ahead the share price of BHP is expected to increase dramatically. Julia may therefore, buy call options on BHP. f) A Qantas shareholder wishes to hedge against the possibility of a dramatic fall in the price of Qantas shares. The shareholder can hedge against this exposure by selling call options on Qantas