Oil is selling at a spot price of $41.98 per barrel. Oil can be stored at a cost of $0.42 per barrel per month. The opportunity cost of capital is 0.5% per month. 

What is the gain or loss realized by an oil refinery that floats its exposure and purchases oil on the spot market in 2 months at a price of $42.62 per barrel, instead of hedging with a forward contract?

Answer rating: 100% (QA)

To calculate the gain or loss realized by the oil refinery we need to compare the cost of floating i... View the full answer