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On October 2, 2020, the price of platinum was $886 per ounce and the April 2021...

On October 2, 2020, the price of platinum was $886 per ounce and the April 2021 futures price was $903.6 per ounce. Suppose on February 10, 2021, the price of platinum is $912 per ounce and the April futures price is 917.8 per ounce. A company entered into an April futures contracts on October 2 to hedge the purchase of platinum on February 10. It closes out its position on February 10. What is the effective price (after taking account of hedging) for the company?

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Answer #1

Price of platinum on 2nd Oct 2020 = $886 and on 10th Feb 2021 = $ 912

April Futures Price of platinum on 2nd Oct 2020 = $903.6 and on 10th Feb 2021 = $ 917.8

Since the company has purchased April futures in Oct and Sold it in February, it has bought in $ 903.6 and sold it on 917.8, So profit per ounce is 917.8 - 903.6 = $ 14.2/Ounce

In February , the company has bought the platinum at $ 912/Ounce.

So Our buying price for platinum is 912 and prfit from corresponding futures is 14.2 / ounce.

Net price per ounce will be buying price - profit from futures

= 912 - 14.2

= $ 897.80 /Ounce

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