FIN4520-Chapter3

FIN4520-Chapter3 - Hedging Strategies Using Futures Chapter...

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Hedging Strategies Using Futures Chapter 3 1
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A hedge is a transaction designed to reduce risk. A long futures hedge is appropriate when you know you will purchase an asset in the future and want to lock in the price A short futures hedge is appropriate when you know you will sell an asset in 2
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Gold Example On September 26 the price of a gold future expiring in December was $431.50 per troy ounce and the spot price was $433.40 per troy ounce. A gold dealer held 100 troy ounces worth $43,340.00 in the spot market. This dealer is concerned about the possibility of a fall in gold prices. How can he protect himself? 3
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Gold Solution The dealer could use a short hedge. If he sells one futures contract, he can lock in the sale price of $431.50 per troy ounce in December. Assume the dealer holds the contract until maturity.
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This note was uploaded on 01/19/2012 for the course FIN 4520 taught by Professor Lucyackert during the Spring '12 term at Kennesaw.

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FIN4520-Chapter3 - Hedging Strategies Using Futures Chapter...

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