How Can a Gold Futures Contract Be Used as a Hedge

question 50

Multiple Choice

How can a gold futures contract be used as a hedge against a potentially dramatic decrease in the price of the gold needed as an input into the production of computer microprocessors?

• A) The computer company should sell gold futures contracts.
• B) The computer company should sell more gold futures contracts than it should buy.
• C) This is a standard business situation, which would be favorable if it were to happen, so no hedge is needed.
• D) The computer company should lower its finished product prices now in anticipation of the decrease in the price of gold inputs.

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