an industrial manufacturer on the East Coast of the USA needs to purchase 30,000 barrels of crude oil sometime around mid-October 2022 and they are concerned that the crude oil price will rise before then. They are considering locking in a purchase price for their oil now using the NYMEX WTI light sweet crude oil futures and they have approached you to advise them on the hedge. Assume that today is March 29, 2022 (and the current spot oil price is USD106.98 (per barrel)). Also assume that you have estimated the quarterly standard deviation of the crude oil futures price changes to be 0.824, the quarterly standard deviation of the spot crude oil price changes to be 0.738, and the correlation coefficient between these price changes to be 0.912. (e) Calculate the optimal number of contracts required (by tailing the hedge) and recommend an effective hedge for the manufacturer. Use the appropriate futures contract from Table 3 and recall that one NYMEX futures contract is written on 1,000 barrels of oil. (1) Next, assume that the industrial manufacturer is ready to purchase the crude oil in mid- October. At this time, the crude oil spot price has decreased to USD59.50 per barrel and the crude oil futures price for delivery in one month is USD59.34 per barrel. Calculate the outcome with and without the hedge. What is the company's effective purchase price with and without the hedge? Did the industrial manufacturer benefit from this hedge? (g) Explain the main objective of the recommended hedge and the reasons why it cannot be a perfect hedge. an industrial manufacturer on the East Coast of the USA needs to purchase 30,000 barrels of crude oil sometime around mid-October 2022 and they are concerned that the crude oil price will rise before then. They are considering locking in a purchase price for their oil now using the NYMEX WTI light sweet crude oil futures and they have approached you to advise them on the hedge. Assume that today is March 29, 2022 (and the current spot oil price is USD106.98 (per barrel)). Also assume that you have estimated the quarterly standard deviation of the crude oil futures price changes to be 0.824, the quarterly standard deviation of the spot crude oil price changes to be 0.738, and the correlation coefficient between these price changes to be 0.912. (e) Calculate the optimal number of contracts required (by tailing the hedge) and recommend an effective hedge for the manufacturer. Use the appropriate futures contract from Table 3 and recall that one NYMEX futures contract is written on 1,000 barrels of oil. (1) Next, assume that the industrial manufacturer is ready to purchase the crude oil in mid- October. At this time, the crude oil spot price has decreased to USD59.50 per barrel and the crude oil futures price for delivery in one month is USD59.34 per barrel. Calculate the outcome with and without the hedge. What is the company's effective purchase price with and without the hedge? Did the industrial manufacturer benefit from this hedge? (g) Explain the main objective of the recommended hedge and the reasons why it cannot be a perfect hedge
