Silver Co., a silver mining company expects to mine 2000 lbs of silver in the next 3 month. Assuming that silver future contracts are not available. You have determined gold future to be the best hedge for silver. The current 3-month gold future contract is trading $1,940/oz and each contract is for 100oz (each contract is worth 1940*100). Gold future and silver prices have a .95 correlation; silver daily volatility/standard deviation is 1.24%, and gold future daily volatility/standard deviation is .992%

As the chief risk officer of Silver Co.,

1. how can you hedge your silver exposure?

2. Calculate the hedge ratio?

3. Calculate the number of contracts you will need to hedge? assume you can trade fraction of a contract.