It is now September 2023. The company you work for anticipates that it will purchase 1 million pounds of copper in each in Feb 2024, August 2024, and Feb 2025. The company has decided to use the futures contract traded on the COMEX division of the New York Mercantile Exchange to hedge the risk. One contract is for delivery of 25,000 pounds of copper. The initial margin is $2,000 per contract. And the maintenance margin is $1,500 per contract. The companys policy is to hedge 80% of its exposures. Contracts with a maturity up to 13 months into the future are considered to have sufficient liquidity to meet the companys needs (Note the prices you have allow you to devise an optimal strategy, in reality you would not know the spot prices and futures prices at dates in the future until the actual date).

b. After closing out the final position in Feb 2025 you are asked to evaluate the effectiveness of the hedging strategy. Given the prices in the following table, what is the impact of the strategy you propose on the effective price the company paid for copper? (calculate an effective price per pound for each delivery date). Illustrate the impact of the hedging strategy during the time under consideration. Assume the market prices (in cents per pound) at future dates are as follows (you did not know the spot prices at the time of your hedge and only found out the futures prices at each date when you reevaluated the hedges).

c. What is the initial margin requirement in Sept 2023 for all of your contracts? Given your strategy and the spot prices below, do you think the company would have been subject to any margin calls during the life of the hedge (you do not need to calculate the margin call just look at each time period and see if you would have had a large enough cumulative loss for a margin call)?

	Sept 2023	Feb 2024	Aug 2024	Feb 2025
Spot Price	72	69	65	77
March 2023 Futures Price	72.30	69.10	N/A	N/A
Sept 2023 Futures Price	72.80	70.20	64.80	N/A
March 2024 Futures Price	N/A	70.70	64.30	76.70