An asset manager has a portfolio of commodities and expects to buy 1200kg of iron within 1 month. Historical standard deviations of iron spot price and iron 1- month future contract price are 0.07 and 0.08, respectively.

Historical correlation between the iron spot price and the 1-month iron future contract price is 0.91. Relevant characteristics of the iron 1-month future contract are:

Contract Size: 220 kg; Initial Margin: €2250; Maintenance margin: €2000. Under the terms of the contract, the margin call is set to bring the margin account balance level to 6% above the initial margin.

a) The asset manager wants to use this future contract for hedging purposes.Explain a possible reasoning for this and whether the position would be

short or long in the contract.