You are a jewelry maker. In May of each year, you purchase 10,000 troy ounces of silver to restock your production inventory. Today, you hedged your position at what turned out to be the lowest price of the day. Assume the actual price per troy ounce of silver is 9.215 in May. How much did you gain or lose by hedging your position?
Silver - 5,000 troy oz.:
u.S. dollars and cents per troy oz.
A)loss $4,400
B)loss $2,200
C)no gain or loss
D)gain $2,200
E)gain $4,400

Question

You are a jewelry maker. In May of each year, you purchase 10,000 troy ounces of silver to restock your production inventory. Today, you hedged your position at what turned out to be the lowest price of the day. Assume the actual price per troy ounce of silver is 9.215 in May. How much did you gain or lose by hedging your position?
Silver - 5,000 troy oz.:
u.S. dollars and cents per troy oz. 
A)loss $4,400 
B)loss $2,200 
C)no gain or loss 
D)gain $2,200 
E)gain $4,400

Quizplus · Accepted Answer

Savings = 2 F1F1F1S1F1F1F10 5,000 F1F1F1S1F1F1F10 ($9.215 - $9.655) = -$4,400. You lost $4,400 by hedging.

You Are a Jewelry Maker