Chapter 01 · Section 1.1

Watchmaker Case Study - Question 2

What our Watchmaker needs is the choice whether or not to use price protection. That means, the Watchmaker needs to buy

a) the right to sell 1,000 ounces of gold at $400/oz in two months.
No. This answer is partially correct. He could buy the gold now and sell it in two months time at $400/oz if he does not obtain the order. If he does, he may resell the unused instrument. Which other solution is simpler?
b) the right to buy 1,000 ounces of gold at $400/oz in two months.
c) the obligation to buy 1,000 ounces of gold at $400/oz in two months.