a ) Give an example of companies using long hedging and an example of companies using short
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Question:
a Give an example of companies using long hedging and an example of companies using short hedging to reduce business risk.
b An airline executive has argued: There is no point in our using oil futures. There is just as much chance that the price of oil in the future will be less than the futures price as there is that it will be greater than this price. Discuss the executives viewpoint.
c trader owns units of a particular asset and decides to hedge the value of her position with futures contracts on another related asset. Each futures contract is on units. The spot price of the asset that is owned is $ and the standard deviation of the change in this price over the life of the hedge is estimated to be $ The futures price of the related asset is $ and the standard deviation of the change in this over the life of the hedge is $ The coefficient of correlation between the spot price change and futures price change is What is the optimal position in futures market for hedging?
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