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**Question 151.2** An industrial manufacturer will require the purchase of one million pounds of copper, as a raw material input, in four months. Which is the best hedge against the spot price of copper? | Financial Risk Manager Part 1 Quiz - LeetQuiz

Explanation:

A firm that must buy the commodity in the future is exposed to a rise in the spot price, so it should use a long futures hedge.

If one copper futures contract represents 25,000 pounds, then:

\frac{1{,}000{,}000}{25{,}000} = 40

So the best hedge is to long 40 futures contracts.

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Financial Risk Manager Part 1

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Question 151.2 An industrial manufacturer will require the purchase of one million pounds of copper, as a raw material input, in four months. Which is the best hedge against the spot price of copper?