XYZ Co. is gold producer and will sell 10,000 ounces of gold in 3 months at the prevailing market price at that time. The standard deviation of the change in the price of gold over a 3-month period is 3.6%. In order to hedge its price exposure, XYZ Co. decides to use gold futures to hedge. The contract size of each gold futures contract is 10 ounces. The standard deviation of the gold futures price is 4.2%. The correlation between quarterly changes in the futures price and the spot price of gold is 0.86. To hedge its price exposure, how many futures contracts would XYZ Co. go long or short?

a.

Short 737 contracts.

b.

Short 632 contracts.

c.

Long 737 contracts.

d.

Long 632 contracts.