Answer-first summary for fast verification
Answer: Long 40 futures contacts
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**.
Author: Manit Arora
Ultimate access to all questions.
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?
A
Short 40 futures contacts
B
Short 400 futures contracts
C
Long 40 futures contacts
D
Long 400 futures contracts
No comments yet.