Answer true or false, no explanation required

a) A speculator thinks the price of oil will increase from 60 currently to 70 in 1 year. The 1-year forward price of oil is 75. The speculator is likely to want to take a long position in the forward contract.

b) A long forward contract gives the owner of that contract the right, but not the obligation to buy the underlying security at the pre-determined forward price.

c) In order to hedge themselves, an energy producer is more likely to go long a forward contract than to go short a forward contract on oil.

d) A forward curve is likely to exhibit very steep contango when storage costs are low.

e) The oil forward curve is likely to be in contango when the convenience yield is very high. f) If there is a temporary and significant oil supply shortage, the oil forward curve is more likely to be in backwardation than in contango.

g) Suppose that a long position in a forward contract on snowfall pays out (S – 50) on Jan 1, where S is the number of centimeters of snowfall in the month of December. If you own a ski hill and want to hedge against snowfall risk, you would likely take a long position in the forward contract

Answer rating: 100% (QA)

a true The spec ulator is likely to want to take a long position in the forward contract because they believe the price of oil will increase from 60 t... View the full answer