Jewelry Company receives a jewelry order to be made in 6 months from now, it needs to use 10,000 ounces of silver to fulfill this order. “ Step 1: The jewelry company wants to secure its cost in next 6 months by long 2 silver futures contracts in the market at $33/oz. which is the price it agrees to pay at the delivery. (How the company does in open long position at this price, why the company decides to long at this?) : Assume that the contract size of silver futures is 5,000 troy-ounces per contract, and current trade price is at $33/oz.) Step 2: John wants to speculate solely on change in price of silver. He has no silver to deliver nor does need actual delivery. He offers the 6-month futures price at $33/oz of silver with anticipation of lower silver price than what he offers. Step3: As a result, he might make a profit or loss depending on the future price
Could you please give further explanation and visualize the transaction below, step by step ,focus on the procedure, assume that you try to make the newly investor understand the process and core concept of the transaction below
(the newly investor don’t understand the process to trade futures or forward contract & just have knowledge in stock trading and basic of price movement relation between underlying asset and its derivative product .)
“Jewelry Company receives a jewelry order to be made in 6 months from now, it needs to use 10,000 ounces of silver to fulfill this order. “
Step 1: The jewelry company wants to secure its cost in next 6 months by long 2 silver futures contracts in the market at $33/oz. which is the price it agrees to pay at the delivery. (How the company does in open long position at this price, why the company decides to long at this?)
: Assume that the contract size of silver futures is 5,000 troy-ounces per contract, and current trade price is at $33/oz.)
Step 2: John wants to speculate solely on change in price of silver. He has no silver to deliver nor does need actual delivery.
He offers the 6-month futures price at $33/oz of silver with anticipation of lower silver price than what he offers.
Step3: As a result, he might make a profit or loss depending on the future price
Thank you so much for your helping!
Step by step
Solved in 2 steps
Please describe thoroughly about the procedure from beginning to ending process
both in Forward market (Jewelry Company sign an agreement with jewelry buyer)
and in Future market ,start from jewelry maker want to lock in the price at$33/oz. until settlement date between jewelry maker and John (Can john close the contract before settlement date?)
(Does the locking price always the current market price at that time? Does jewelry maker think that the price of silver will be increased?, How Jewelry deliver money to John?)
Thank you for your answering
by Bartleby Expert
