Financial Risk Manager Part 1

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Explanation:

Because the company does not want to tail the hedge, use the standard optimal hedge ratio:

h^* = \rho \times \frac{\sigma_S}{\sigma_F} = 0.9 \times \frac{20\%}{30\%} = 0.6

Gold futures contract size is typically 100 ounces, so the number of contracts is:

N = 0.6 \times \frac{1{,}000{,}000}{100} = 6{,}000

Since the company is hedging a future sale, it should short 6,000 contracts.

Explanation:

Because the company does not want to tail the hedge, use the standard optimal hedge ratio:

h^* = \rho \times \frac{\sigma_S}{\sigma_F} = 0.9 \times \frac{20\%}{30\%} = 0.6

Gold futures contract size is typically 100 ounces, so the number of contracts is:

N = 0.6 \times \frac{1{,}000{,}000}{100} = 6{,}000

Since the company is hedging a future sale, it should short 6,000 contracts.

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MManit

Last updated: April 18, 2026 at 11:32

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