You are the CFO of an airline and you are concerned that jet fuel prices will...

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You are the CFO of an airline and you are concerned that jet fuel prices will increase. You know that there are no futures for jet fuel, but there are futures for gasoline. So, you call decide to check the spot price of jet fuel and gasoline. Changes in their relative prices are as follows: Mo 1 Mo 2 Mo 3 Mo 4 Mo 5 Mo 6 2.0% -4.0% 0.0% 2.0% -5.0% 1.0% Mo A Gas Futures Mo A Jet Fuel 3.0% 3.5% 3.5% 2.6% -3.0% -2.0% Mo 7 -2.5% -1.0% If you are trying to hedge 1,000,000 gallons of jet fuel, how many gasoline contracts do you need to buy to adequately hedge your position? (Each futures contract represents 42,000 gallons of gasoline). You are the CFO of an airline and you are concerned that jet fuel prices will increase. You know that there are no futures for jet fuel, but there are futures for gasoline. So, you call decide to check the spot price of jet fuel and gasoline. Changes in their relative prices are as follows: Mo 1 Mo 2 Mo 3 Mo 4 Mo 5 Mo 6 2.0% -4.0% 0.0% 2.0% -5.0% 1.0% Mo A Gas Futures Mo A Jet Fuel 3.0% 3.5% 3.5% 2.6% -3.0% -2.0% Mo 7 -2.5% -1.0% If you are trying to hedge 1,000,000 gallons of jet fuel, how many gasoline contracts do you need to buy to adequately hedge your position? (Each futures contract represents 42,000 gallons of gasoline).

Answer rating: 100% (QA)

To hedge 1000000 gallons of jet fuel you would need to buy 24 futures contracts This is calculated ... View the full answer