Question
Comment on the desirability of a goal of trading futures in order to minimize the variability of the cost of acquiring aviation fuel. Your answer
Comment on the desirability of a goal of trading futures in order to minimize the variability of the cost of acquiring aviation fuel. Your answer should consider:
i. The relation between Qantas profits and aviation fuel prices. Note that if aviation fuel costs do increase, then Qantas and its competitors might increase ticket prices.
ii. The nature of competition in the airline industry. Note that if Qantas locks-in its aviation fuel costs and Singapore Airline chooses not to hedge, then one airline will have a competitive advantage if aviation prices then rise while the other will have an advantage if instead aviation fuel prices fall.
iii. Whether Qantas shareholders do or do not benefit from a reduction in variance risk. Consider the relation between variance risk and systematic risk as well as shareholders ability to diversify away non-systematic risk.
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