The management of a jewelry store plans to buy gold in the future and seeks protection against an increase in the price of gold. The current price of gold is $352.40 per ounce. The futures price of gold is $397.80 per ounce. The number of ounces to be hedged is 1,000, and the number of ounces per futures contract is 100. Therefore, 10 contracts will be hedged.
Describe in detail the hedge created by the jewelry store. That is what actions would be taken and why?
Based on the information given in the question, describe the outcome in detail of this hedge if the price of gold is $304.20 per ounce and the price of the futures contract is $349.60 per ounce when the hedge is lifted.
Based on the information given in the question (not your answer above, but the original information), describe the outcome in detail of this hedge if the price of gold is $392.50 per ounce and the price of the futures contract is $437.90 per ounce when the hedge is lifted.