Business

Business

Order Description
Question 1 – Compulsory
a) A financial analyst checks the financial markets data for commodities using their
mobile phone. The prices for two different commodities catch her attention. For the
first commodity the expected spot price (i.e. taken as the current spot price) is higher
than the futures price while for the second commodity the forward price is higher than
the expected spot price. Critically discuss the finance theory(ies) that explain these
situations?

b) Computer Blue Ltd is a manufacturer of computers that uses gold as an input to
production. Explain which position on the futures contract Computer Blue Ltd should
take and, based on that, complete the Table below. Calculate the profit/loss, total
value of the future contract, and mark-to-market settlement for the following future
contract of Computer Blue Ltd.

Gold Contract 50,000lbs, cents per lb.

Day Futures Profit loss Total value
price$ per lb of contract
0 0.1628 n/a
1 0.1623
2 0.1630
3 0.1665