It's April 2021. You are an oil distributor, planning to buy 400,000 barrels of crude oil from
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Question:
(a) If you were to hedge using futures market, would you enter short or long futures position in April 2021? Explain. (5 pts)
(b) What contracts and how many contracts do you need? (5 pts)
Suppose that in April 2022 the futures contract's price turns out to be $55.00 a barrel and spot price turns out to be $50.00 a barrel
(c) Calculate total profit or loss on your futures position (6 pts)
(d) What is the overall price per barrel paid by the oil distributor in April 2022 after taking into account profits or losses on the futures position? Show your calculations. (6 pts)
Now suppose that in April 2022 the futures contract's price turns out to be $80.00 a barrel and spot price turns out to be $85.00 a barrel
(e) What is the overall price per barrel paid by the oil distributor in April 2022 after taking into account profits or losses on the futures position? Show your calculations. (6 pts)
Related Book For
Statistics For Business And Economics
ISBN: 9780321826237
12th Edition
Authors: James T. McClave, P. George Benson, Terry T Sincich
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