It is end of February, and company A has just purchased 10,000 barrels of crude oil at a price of $45 per barrel. Say A chooses to hbdge its crude oil position using April futures, currently trading at $46.5 (each contract is 1,000 barrels). One month has passed, and at the end of March, the company needs to sell its 10,000 barrels of oil. The spot price is now $50, and the April futures contract is trading at $50.5.

Discuss the hedge position. Did you gain or lose overall with the hedge (ignore time value of money)?

Answer rating: 100% (QA)

With the hedge Company A locked in the April futures price of 465 per barrel g... View the full answer