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A company enters into a forward contract to purchase a key raw material at a fixed price of $100 per unit in 6 months. The current spot price is $90 per unit. If the spot price rises to $110 per unit at the end of the contract, what is the financial outcome for the company?
a.
The company incurs a loss of $10 per unit, as it must purchase the raw material at the higher contracted price despite the increase in spot price.
b.
The company benefits by $10 per unit, as it can purchase the raw material at the lower contracted price.
c.
The financial outcome for the company is neutral, as the forward contract price and the spot price at the end of the contract are the same.
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