Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Question
Assume that spot gold price is trading at US$1,200 per ounce and Golden Star Resources
wants to lock-in this “good” price for 3,000 ounces to be delivered in exactly a year 19th
May 2021. The following assumptions applies:
Spot price = US$1,200 per ounce.
US 12-month cash interest rate = 5%
12-month gold lease rate (or gold borrowing fee) = 2%
Banker’s profit margin = 0.5%
Calculate the total price Golden Star Resources will receive on 19th May 2020 under
normal circumstances.
Rates for This Example
Spot price = US$1,200 per ounce.
US 12-month cash interest rate = 5%
12-month gold lease rate (or gold borrowing fee) = 2.5%
Banker’s profit margin = 0.5%
Identify the hedging instrument Golden Star Resources used to accomplish its objective.
What other hedging tool can Golden Star Resources use to accomplish the same objective,
and what financial position will the company take? (Mitigate price risk)
Offer TWO reasons why you selected that hedging tool identified in the above question
Customized transaction and less cumbersome because it is sold over the counter.
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