Hi,

I would like to ask your help in order to answer to these questions, if it is possible. Please, find the case study attached.

The questions are as follow:

1. Should J&L hedge all of its exposure to diesel fuel? What percentage of the 17.5 million gallons per month would you hedge? How did you arrive at this percentage?

2. What are the pros and cons of using NYMEX contracts versus using the risk-management products offered by Continental Bank? Is the use of a monthly average price a net advantage or disadvantage to J&L? How can Continental hedge its side of the deal?

3. Using the estimate of 17.5 million gallons per month, how would you construct a futures hedge for the following 12 months? How would you construct a commodity-swap hedge?

4. Should Craft consider using an option-based hedge, i.e., caps, floors, collars, or corridors? Would you recommend that he reduce his overall hedging cost by using a collar or corridor? What strike prices you should use? Provide graphic illustrations.

Many thanks for your help.

Best Regards