Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

It is February 2021. A manufacturer expects to purchase 2000 metric tons of aluminum in August 2021. Considering the recent uptrend in the aluminum market,

It is February 2021. A manufacturer expects to purchase 2000 metric tons of aluminum in August 2021. Considering the recent uptrend in the aluminum market, the company plans on using the August 2021 Aluminum futures from the CME markets to manage their risk exposure. Specifically, they want to create a hedge position to remove the uncertainty about their buying price as much as possible. And the August Aluminum futures contract is a perfect match for their need for the hedge. The Aluminum spot price is currently at $2,140 per metric ton and the August 2021 Aluminum futures contract that is trading at $2,194. Each contract is for the delivery of 25 metric tons.

If the August 2021 Aluminum futures is $2,097 in August 2021, what will be the effective aluminum buying price per metric ton to be paid by the company? (Note: Round to the nearest $1.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Build An Online Retail System For Under $150

Authors: Roger Butterworth

1st Edition

1530170044, 978-1530170043

More Books

Students also viewed these Finance questions