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Date of contract Close out date (maturity 4 September 2015 date) Contract price Size of contract The initial margin Maintenance margin R975 per ounce 10 futures contract, each contract represents 100 troy 1st September 2015 2nd September 2015 3rd September 2015 4th September 2015 ounces R12,000 per contract | R11,200 per contract Over the four trading days, the gold prices were as follows Date Spot price R964 R960 R970 R980

Date of contract Close out date (maturity 4 September 2015 date) Contract price Size of contract The initial margin Maintenance margin R975 per ounce 10 futures contract, each contract represents 100 troy 1st September 2015 2nd September 2015 3rd September 2015 4th September 2015 ounces R12,000 per contract | R11,200 per contract Over the four trading days, the gold prices were as follows Date Spot price R964 R960 R970 R980

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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act. The detalls of the contract are given below Date of contract 1 September 2015 Close out date (maturity 4 September 2015 date) Contract price Size of contract R975 per ounce 10 futures contract, each contract represents 100 troy ounces The initial margin Maintenance margin R12,000 per contract RI1,200 per contract Over the four trading days, the gold prices were as follows Date Spot price 1* September 2015 2nd September 2015 R964 R960 3rd September 2015 R970 4th September 2015 R980 Required 1. Explain whether Chill Ltd is buying or selling futures as a hedge. 2. Demonstrate the concept of marking to market using the 10 gold futures. Do that for the buyer and the seller. Clearly show the balance in the margin account at the end of each of the four trading days. 3. Under what circumstances is (a) a short hedge and (b) a long hedge appropriate?
Transcribed Image Text:act. The detalls of the contract are given below Date of contract 1 September 2015 Close out date (maturity 4 September 2015 date) Contract price Size of contract R975 per ounce 10 futures contract, each contract represents 100 troy ounces The initial margin Maintenance margin R12,000 per contract RI1,200 per contract Over the four trading days, the gold prices were as follows Date Spot price 1* September 2015 2nd September 2015 R964 R960 3rd September 2015 R970 4th September 2015 R980 Required 1. Explain whether Chill Ltd is buying or selling futures as a hedge. 2. Demonstrate the concept of marking to market using the 10 gold futures. Do that for the buyer and the seller. Clearly show the balance in the margin account at the end of each of the four trading days. 3. Under what circumstances is (a) a short hedge and (b) a long hedge appropriate?
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