Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Newcrest Mining, a gold mining company, uses the futures market to hedge against the fluctuation of gold price. With the forecasted production of 30,000 ounces

image text in transcribed

Newcrest Mining, a gold mining company, uses the futures market to hedge against the fluctuation of gold price. With the forecasted production of 30,000 ounces of gold, Newcrest would like to hedge 100% of its exposure. It is now November 15th and the company opens an October gold futures position on 50% of the exposure and posts an initial of $11,000 per contract. The position is entered into at a futures price of $1,750 per ounce. The maintenance margin is $8,250 per contract. At the end of the day on November 15th the October contract settles at $1,790 per ounce. On November 16th, Newcrest enters into additional October gold futures contracts to hedge the remaining 50% of its exposure, at the futures price of $1,820 per ounce. The October gold futures settles at $1,800 on November 16th. Assume each gold futures contract is on 100 ounces of gold. a) What is the balance of Newcrest Mining's margin account at the end of the day on November 16th? Please, show all your workings. b) Under what circumstances would Newcrest Mining be able to withdraw $300,000 from the margin account on November 17th? Please, show all your workings

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

Governance Of Financial Management

Authors: John Carver, Miriam Carver

1st Edition

0470392541, 9780470392546

More Books

Students also viewed these Finance questions

Question

Discuss the effectiveness of a national infrastructure for HRD

Answered: 1 week ago