Problem
Assume Tesla Inc. (i. e. NASDAQ: TSLA) intends to buy 535630 troy ounces of palladium in 3 months as an input in producing electric vehicles. Considering the current economic environment in the US and globally, Tesla Inc. fears that it will be adversely affected and wishes to hedge to reduce its risk related to palladium price changes. Given this scenario, please answer the following questions:
1. Identify one financial risk faced by Tesla Inc. given the above scenario. Systematically review and critically evaluate research from a variety of sources to explain why you have identified this as a risk, and whether you would consider hedging. Discuss in your answer the outlook for the underlying variable and cite evidence of an adverse and/or favourable direction. NB: reference list will not be part of the word count.
2. For the risk, you have mentioned in part (1) recommend a hedging strategy that is consistent with the outlook discussed in part (a) and explain why you have chosen this strategy above all others
3. Irrespective of your answer above, assume you are using an exchange-traded option 'combination' strategy to hedge your risk. Please use real data from the CME group and provide the total cost of the hedge (the net premium), the strike prices used, and the number of contracts required. Show all calculations and provide screenshots of the data obtained from the CME group.