M7 Q6 Minelli Enterprises uses large amounts of copper in the manufacture of ceiling fans. The firm has been very concerned about the detrimental impact of rising copper prices on its earnings and has decided to hedge the price risk associated with its next quarterly purchase of copper. The current market price of copper is $3.00 per pound and Minelli's management wants to lock in this price. How can Minelli ensure that it will pay no more than $3 per pound for copper using a forward contract? Question content area bottom Part 1 (Select the best choice below.) A. Minelli can take a short position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. To complete this transaction, Minelli must find a counterpart to take the other side of the contract. B. Minelli can take a long position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. The futures exchange would find a counterpart to take the other side of the contract. C. Minelli can take a long position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. To complete this transaction, Minelli must find a counterpart to take the other side of the contract. D. Minelli might also see if there is an exchange-traded futures contract that would serve its purpose. This can be easily done without compromising any desired contract elements or changing risk.
M7 Q6 Minelli Enterprises uses large amounts of copper in the manufacture of ceiling fans. The firm has been very concerned about the detrimental impact of rising copper prices on its earnings and has decided to hedge the price risk associated with its next quarterly purchase of copper. The current market price of copper is $3.00 per pound and Minelli's management wants to lock in this price. How can Minelli ensure that it will pay no more than $3 per pound for copper using a forward contract? Question content area bottom Part 1 (Select the best choice below.) A. Minelli can take a short position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. To complete this transaction, Minelli must find a counterpart to take the other side of the contract. B. Minelli can take a long position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. The futures exchange would find a counterpart to take the other side of the contract. C. Minelli can take a long position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. To complete this transaction, Minelli must find a counterpart to take the other side of the contract. D. Minelli might also see if there is an exchange-traded futures contract that would serve its purpose. This can be easily done without compromising any desired contract elements or changing risk.
Chapter16: Country Risk Analysis
Section: Chapter Questions
Problem 16QA
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Question
M7 Q6
Minelli Enterprises uses large amounts of copper in the manufacture of ceiling fans. The firm has been very concerned about the detrimental impact of rising copper prices on its earnings and has decided to hedge the price risk associated with its next quarterly purchase of copper. The current market price of copper is $3.00 per pound and Minelli's management wants to lock in this price. How can Minelli ensure that it will pay no more than $3 per pound for copper using a forward contract?
Question content area bottom
Part 1
(Select the best choice below.)
Minelli can take a short position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. To complete this transaction, Minelli must find a counterpart to take the other side of the contract.
Minelli can take a long position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. The futures exchange would find a counterpart to take the other side of the contract.
Minelli can take a long position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. To complete this transaction, Minelli must find a counterpart to take the other side of the contract.
Minelli might also see if there is an exchange-traded futures contract that would serve its purpose. This can be easily done without compromising any desired contract elements or changing risk.
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