1. Its now Oct 2007. A company anticipates that it will sell 1 million pounds of copper in August 2008 and decides to hedge its risk fully. Assume the market prices of futures contract today and at future dates are as follows (in cents per pound ) What positions should the company take? What is the effective selling price per pound of copper? The size of copper contract is 25,000 pounds per contract.

Date	Oct 07	Feb 08	Aug 08
Mar 08 Futures Price	372	369
Sept 08 Futures Price		371	365
Spot Price	371	368	364

For the sale, you need 1000,000/25,000 = 40 future contracts.

Oct 2007: Enter Short positions on 40 Mar 08 copper contracts.

Feb 08: close out 40 Mar 08 contracts, short 40 Sept 08 contracts.

Aug 08: Close out Sept 08 contracts. and sell in spot market.

What is your effective selling price?