It is now Nov 2018. A company anticipates that it will buy 1.0 million barrels of light sweet crude oil in August 2019. CME Light Sweet Crude futures contracts (1 contract is for 1,000 barrels or 42,000 gallons) are available for hedging price risk. Company policy is to hedge 90% of its exposure and to use at all times futures contracts maturing in less than eight months. Suppose you are this company’s risk manager. a) State the proper strategy for hedging the Aug 2019 purchase. b) Given the following set of prices ($, per barrel), determine the price/barrel the company realized for its Aug 2019 crude oil purchases.

Date	Nov 18	Dec 18	Jan 19	Feb 19	Mar 19	Apr 19	Aug 19
Spot Price	60.00	61.50	62.60	64.00	64.50	66.00	71.00
Feb 19 Futures	61.12	61.70	63.10
Mar 19 Futures	64.28	64.40	64.60	65.00
Apr 19 Futures	65.91	66.00	67.20	67.20	68.16
May 19 Futures	66.18	66.50	67.60	67.90	68.95	69.05
Sep 19 Futures	67.43	67.45	68.20	69.00	70.02	71.33	72.00

Answer rating: 100% (QA)

aThe proper strategy for hedging the Aug 2019 purchase would be to use the Feb Mar Apr and May 2019 futures contracts Date Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 Aug 19 Spot Price 6000 6150 6260 64... View the full answer