MCQ Week 7On February 1, 20X6, Nickel Mining Co. (NMC) decided to use aforward contract to hedge the price of nickel on 150,000pounds of nickel, which represents 30% of its annual sales.Currently, the spot price is $6 per pound. NMC will settle thecontract on July 31, 20X6. The company has entered into aforward contract to deliver 150,000 pounds of nickel onJuly 31, 20X6, at a forward price of $7 per pound.Which of the following statements BEST describes what thiscontract means for NMC?a)NMC will purchase 150,000 pounds of nickel on July 31, 20X6, and will have to pay $1,050,000.b)NMC will deliver 150,000 pounds of nickel on July 31, 20X6, and receive cash of $900,000 on delivery.c)NMC will deliver 150,000 pounds of nickel on July 31, 20X6, and receive the higher of the $7 per poundd)NMC will deliver 150,000 pounds of nickel on July 31, 20X6, and receive $1,050,000 on delivery.
View question 1 feedbackSports Clothing Inc. (SCI), a Canadian company reporting inCanadian dollars, is a wholesale sports clothing distributorselling to retail outlets across North America. It recentlyopened up an office and warehouse in the United States, andborrowed funds in U.S. dollars to fund the expansion. The loanhas a fixed rate of 5% per annum.The company will sell items in U.S. dollars and incur costs inCanadian and U.S. dollars. Based on projections, the companyexpects sales in U.S. dollars to be greater than its U.S. dollarcosts.Which of the following statements BEST describes the risksfacing this company?