Topic: Enterprise Risk Management
Question :Every Boxing Day, my wife and I host a rather large party at our house. My job is to make sure that I buy oranges as inexpensively as possible so my wife can make her famous Gran Marnier French Toast.
Assume it is late March. There are three basic strategies for buying the oranges that I can follow. I can
(a) do nothing and buy in the spot market on December 23, or
(b) I can enter into a forward contract at a Forward Price of $5, or
(c) I can spend $0.75 and buy a call option with a strike price of $5.
Prepare a report and a recommendation for what I should do.
Your report should include profit profile graphs and a clear analysis of the trade-offs involved and a clear recommendation.