Chapter 01 · Section 1.1

Watchmaker Case Study - Question 1

Should the Watchmaker's treasurer buy a forward (or futures) contract to secure the company against a rise in prices?

b) Yes, the Watchmaker needs a vehicle that guarantees him a fixed price of $400/oz in two months time.
No. Please keep in mind that he is not sure whether he will have to buy the additional 1,000 oz. If in the end the contract is not signed, he will be unnecessarily exposed to price risk.
c) No, the obligation to buy the gold would expose him to unnecessary price risk if he does not receive the order.