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BHP Billiton is the world’s largest mining firm. BHP expects to produce 2 billion pounds of...

  1. BHP Billiton is the world’s largest mining firm. BHP expects to produce 2 billion pounds of copper next year, with a production cost of $0.80 per pound.

a. What will be BHP’s operating profit from copper next year if the firm enters into a contract to supply copper to end users at the price of $1.4 per pound?

b. What would be profit/loss from the hedge if the price of copper next year is $1.20 or $1.75 per pound? Sketch profit/ loss profile as the function of market price

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