Question
Assume the firm has a downward sloping risk profile with respect to crude oil price (i.e. with crude oil price as the x-axis). Which one
Assume the firm has a downward sloping risk profile with respect to crude oil price (i.e. with crude oil price as the x-axis). Which one of these statements correctly describes the instruments that the firm can use to hedge the risk exposure to crude oil price?
A) The firm can take a long position in a forward contract whose payoff profile is downward sloping. B) The firm can take a short position in a forward contract whose payoff profile is upward sloping. C) The firm cannot use futures contracts because futures contracts settle daily. D) The firms hedge portfolio can consist of options, swaps and futures E) If the firm takes a long position in a call option on crude oil, it will eliminate both downside risk and upside potential.
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