Question
Copper is Raw Material for your business. It is March 1 2022 today; your company needs 10 MT of Copper on 31st March 2022. The
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Copper is Raw Material for your business. It is March 1 2022 today; your company needs 10 MT of Copper on 31st March 2022. The price of copper today is Rs 480 per kg. Your Company does not want to buy today and stock the material for 3 months. You fear the prices may increase due to war between Russia and Ukraine in future. You carry risk of loss, how do you use Futures contract on MCX to hedge your risk, if futures price of Aluminum contract is 494 per kg? If the lot size is 5 MT, what is your exposure at MCX? Can you protect your price risk completely? If not, then how much exposure is unhedged? Show the payoffs of Hedger & Speculator assuming Cash Settlement. Draw the payoffs on a graph.
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