HEDGING AND SPECULATION IN FUTURES MARKETS Why would a speculator buy a futures contract? Provide the two reasons. Oil contract Futures px initial margin # of contracts 1,000 barrels 68.5 10% 10 Calculate rate of return on investing in oil [cash basis] vs. taking along position in futures if oil price increases by $2/bbl Use the matrix below to show the revenue, profit/loss and total proceeds for an oil distributor who wants to hedge against a possible decline in the price of oil; plan to sell 10,000 barrels oil price in July 66.50 $ 68.50 $ $ 70.50 Revenue from oil sale Profit/loss on futures Total proceeds HEDGING AND SPECULATION IN FUTURES MARKETS Why would a speculator buy a futures contract? Provide the two reasons. Oil contract Futures px initial margin # of contracts 1,000 barrels 68.5 10% 10 Calculate rate of return on investing in oil [cash basis] vs. taking along position in futures if oil price increases by $2/bbl Use the matrix below to show the revenue, profit/loss and total proceeds for an oil distributor who wants to hedge against a possible decline in the price of oil; plan to sell 10,000 barrels oil price in July 66.50 $ 68.50 $ $ 70.50 Revenue from oil sale Profit/loss on futures Total proceeds