4. An airline started a hedging program for their exposure to jet fuel in the Spring...
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4. An airline started a hedging program for their exposure to jet fuel in the Spring of 2008 when jet fuel price kept going up due to skyrocketing oil prices. The airline was going long on crude oil futures, with 5,000 contracts every 3 months. The company was having great results for the first three quarters (March, June and September settlements). When the time to roll over their hedge in September for the December futures, the price of crude oil futures was at $130 a barrel. It has risen to as high as $147 a barrel in late August (The rolling usually happens a month before the current contract matures). By the time the December contract is to be closed out, oil price has sunk to $40 a barrel. How much money did the airline loss in their December hedge? The airline got out of the hedging practice entirely afterward. Can you see why? 4. An airline started a hedging program for their exposure to jet fuel in the Spring of 2008 when jet fuel price kept going up due to skyrocketing oil prices. The airline was going long on crude oil futures, with 5,000 contracts every 3 months. The company was having great results for the first three quarters (March, June and September settlements). When the time to roll over their hedge in September for the December futures, the price of crude oil futures was at $130 a barrel. It has risen to as high as $147 a barrel in late August (The rolling usually happens a month before the current contract matures). By the time the December contract is to be closed out, oil price has sunk to $40 a barrel. How much money did the airline loss in their December hedge? The airline got out of the hedging practice entirely afterward. Can you see why?
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Answer rating: 100% (QA)
To calculate the loss incurred by the airline in their December hedge we need to consider the price at which they entered into the hedge the price at which they closed out the hedge and the number of ... View the full answer
Related Book For
Financial Reporting And Analysis
ISBN: 9781260247848
8th Edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
Posted Date:
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