Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Airlines use jet fuel as an input to production. Southwest Airlines is considering using crude oil future or gasoline futures to hedge the price of

Airlines use jet fuel as an input to production. Southwest Airlines is considering using crude oil future or gasoline futures to hedge the price of jet fuel in one month. It runs a regression of the change in jet fuel prices on the change in crude oil prices. The R-squared from the regression is 20%. Next, it runs a regression of the change in jet fuel prices on the change in gasoline prices. The R-squared from the regression is 30%. Based on the available information, which of the two hedging instruments - crude oil futures or gasoline futures - would be a more effective hedge for jet fuel prices?

Crude oil futures are more effective.

Gasoline futures are more effective.

Crude oil and gasoline are equally effective.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Monetary Policy And Public Finance

Authors: G. C. Hockley

1st Edition

1138704792, 978-1138704794

More Books

Students also viewed these Finance questions