A company will buy 1,000 units of a certain commodity in one year. It decides to hedge 100% of its exposure using future

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answerhappygod
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A company will buy 1,000 units of a certain commodity in one year. It decides to hedge 100% of its exposure using future

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A company will buy 1,000 units of a certain commodity in one
year. It decides to hedge 100% of its exposure using futures
contracts. There is a future contract traded in the exchange for
this commodity. The spot price and the futures price are currently
S0 =$100 and F0 = $90, respectively. The spot price and the futures
price in one year turn out to be S1 = $112 and F1= $110,
respectively.
1. What type of hedge should the company design? and Why?
A. Short hedge
B. Long hedge
C. Cross hedge
D. Natural hedge
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