a) Assume that you are the CFO of a service station chain named EZY Adelaide. Fuel is the major expense. The fuel price correlates strongly with the USD oil price and the AUD/USD exchange rate. The purchasing department has proposed locking in the fuel price for the next six months as forecasts from suppliers indicate that the oil price will rise significantly in the near term. Your CEO has queried this strategy arguing that the service station is not exposed to this risk. As the CFO, do you agree or disagree with your CEO? Give your reasons in detail. (15 marks)

b) Now assume that you change your job and move to a regulated network company called Green Electricity, working as a CFO. Regulated network companies own the poles and wires of the electricity grid and typically have their fees approved by government on a cost-plus basis. Your company has a $15 billion debt. As interest rates are at a record low, the accountant has suggested that it might be good timing to lock in rates for the next 15 years. Your CEO has queried this strategy on the basis that the regulated return for network assets set by the government is based on resetting interest rates every five years at a specific reset date. As the CFO, do you agree with your accountant or your CEO? Give your reasons in detail. (15 marks)