Suppose that Jewelery Company is planing to sell twenty thousand ounces of platinum at some future date. The standard deviation of changes in the futures price per ounce F is 12.86, that for the changes in the spot price per ounce S is 14.38, and the correlation coefficient between the spot and futures price change is 0.80.

(a) Compute the optimal hedge ratio for this company. (3 marks)

(b) How many contracts do they need to hedge their position assuming no tailing adjustment? (the contract size per futures contract is 50 ounces.) (3 marks)

(c) Will this be a long position or short position of futures contract for the

hedge? (4 marks)