On September 30, our company executed a purchase order to buy 100,000 lbs of copper on December 31 at a purchase price of $3.10/lb., the spot rate on the date the purchase order is signed. Also on September 30, we execute a forward contract to sell 100,000 lbs. of copper for $3.10/lb., the forward price in effect on that date. Since this is a firm commitment, we classify this transaction as a fair value hedge and we can apply hedge accounting because we believe the hedge to be highly effective. The price of copper and the fair value of the forward contract on September 30 and December 31 are as follows:

	Copper	Forward Contract
September 30	$3.20	$3.10
December 31	$2.75	$2.75

a) What does the relation between the sport and forward prices of copper tell you about the market's expectations for the price of copper through December?

b) What is the risk that we are trying to mitigate by the purchase of the forward contract?

c) At what price will the inventory be recognized when it is purchased on December 31 if the forecasts in the table above prove accurate?

d) What will be the net cash cost of inventory if the forecasts in the table above prove accurate?