5. Petrochemical Parfum (PP) is concerned about a possible increase in the price of heavy fuel oil, which is one of its major inputs. (a) Discuss how PP can use either options or futures contracts to protect itself against a rise in the price of crude oil. (20 marks) (b) Use payoff diagrams to show and explain how the payoffs in each case would vary if the oil price were $70 or $90 a barrel. (20 marks) (c) What are the advantages and disadvantages for PP of using futures rather than options to reduce risk? (10 marks) 5. Petrochemical Parfum (PP) is concerned about a possible increase in the price of heavy fuel oil, which is one of its major inputs. (a) Discuss how PP can use either options or futures contracts to protect itself against a rise in the price of crude oil. (20 marks) (b) Use payoff diagrams to show and explain how the payoffs in each case would vary if the oil price were $70 or $90 a barrel. (20 marks) (c) What are the advantages and disadvantages for PP of using futures rather than options to reduce risk? (10 marks)