Economics · Financial Derivatives
Commodity Derivatives are an integral part of the Indian financial ecosystem, regulated by SEBI. If a manufacturing client of a bank wants to hedge against the rising cost of copper for its production cycle starting in six months, which derivative strategy is most appropriate for the bank to suggest?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Buying a copper put option to protect against the possibility of the market price of copper falling.
- 2Entering into a reverse repo agreement where copper is used as collateral to secure a short-term loan.
- 3Buying a copper call option, which allows the manufacturer to establish a maximum purchase price while risking only the premium.✓
- 4Selling a copper futures contract on an exchange like MCX to lock in current prices.
Correct answer
Buying a copper call option, which allows the manufacturer to establish a maximum purchase price while risking only the premium.
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