Silver long hedge using futures contracts.

Questions attached.

Silver long hedge using futures contracts Suppose that you are a silver fabricator. You will acquire troy ounces of silver at the prevailing market price on the maturity date in December, 2017 from your long-time business partner. But, you worry about the uncertainty in the market price of silver in the future. Hence, you decide to use Globex ("online") silver futures contracts to hedge risk. You will place an order of silver futures contracts at the last closing price of July futures the date when you enter into the futures contracts. (1) Which type of hedge, between short and long, has to be used? (2) What is the contract size of the silver futures per one contract? How many contracts do you have to trade? (3) State the December futures price (last closing price) that you determined. Attach the snapshot of the price listing. (4) Assume that both the spot and futures prices on the December maturity date, 2017 are $11 per ounce. Find out profits of the unhedged spot position, futures position and hedged position. (Hedge position = unhedged spot position + futures position) (5) Assume that both the spot and futures prices on the December maturity date are $26 per ounce. Find out profits of the unhedged spot position, futures position and hedged position. (6) Discuss the effectiveness of your hedge. (7) Now, suppose that you don't have to acquire 2,000,000 ounces of silver from your business partner at the spot market in July. You will directly use the silver futures market to acquire silver and to hedge price risk. Determine the cost to acquire silver of 2,000,000 ounces in the futures market only. Explain this hedge and compare with the hedge in (1) Direction Only hand written submission is allowed. Your answer shouldn't be longer than 2 pages. Get the relevant information from the CME Group: http://www.cmegoup.com/trading/metals/precious/silver.html Use the date when you start this assignment to determine the closing price. Use two decimal values. For example if the closing price was 32.065, then use