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Your company deals with Allyom and wants to hedge its risk using future contracts. However, Futures are not available in Allyom. Closely correlated commodity is

Your company deals with Allyom and wants to hedge its risk using future contracts. However, Futures are not available in Allyom. Closely correlated commodity is Gold in which future contracts are available. You are provided with the following data. Calculate the Optimal Hedge Ratio and Total Number of Gold Future Contracts that your company should buy to hedge their position.
Total Units of Allyom 65,000
Gold Future Contract Size 2,000
Day Allyom Spot Gold Future
0 1,200 1,220
1 1,207 1,230
2 1,225 1,245
3 1,235 1,254
4 1,254 1,260
5 1,240 1,254
6 1,265 1,270
7 1,220 1,245
8 1,225 1,250
9 1,251 1,263
10 1,235 1,254
11 1,215 1,210
12 1,220 1,240
13 1,210 1,230
14 1,185 1,195
15 1,194 1,209
Hedge Ratio Answer
Total Gold Contracts Purchased Answer

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