Question
An oil distributor is planning to sell 100,000 barrels of oil in June (the current future price for June is $38 per barrel) and he
An oil distributor is planning to sell 100,000 barrels of oil in June (the current future price for June is $38 per barrel) and he wishes to hedge against a possible decline in oil prices. He sold 100 contracts, each contract for 1,000 barrels. Suppose that only three possible prices for oil in June are $36, $38, and $41 per barrel. If at June oil price turns out to be $41 per barrel, whats the revenue from oil sales and profit on the futures?
A. | Revenue $5,048,000, Profit from futures $0.
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B. | Revenue $9,000,000, Profit from futures -$200,000.
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C. | Revenue $5,000,000, Profit from futures $0.
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D. | Revenue $4,100,000, Profit from futures - $300,000.
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