Question
Eastmark Electrical Equipment Manufacturers needs to secure its supply of copper for the next year. The price of copper is extremely volatile because of huge
Eastmark Electrical Equipment Manufacturers needs to secure its supply of copper for the next year. The price of copper is extremely volatile because of huge month-to-month variation in demand. Eastmark wants to break even with a hedge against future copper prices. Currently, the market price for copper is reasonably low at $5.00 per pound or $500 (CWT). Eastmark has entered into a contract with the supplier for 450,000 pounds of copper per month starting in January at market prices. Eastmark has also entered into a futures contract with a financial institution for 450,000 pounds per month at $5.00 per pound. CWT (hundredweight) is equal to 100 pounds in the United States.
a. Calculate the one month financial and the physical results if the market price of copper has risen to $6.00 per pound. The financial result is $nothing. (Enter your response as a whole number and include a minus sign if necessary.) The physical result is $______. (Enter your response as a whole number and include a minus sign if necessary.)
b. Calculate the one month financial and the physical results if, instead, the market price of copper fell to $3.50 per pound. The financial result is $_______. (Enter your response as a whole number and include a minus sign if necessary.) The physical result is $_______. (Enter your response as a whole number and include a minus sign if necessary.) (Answer blanks please)
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