Question
It is May 15. An energy importer has negotiated a contract to buy 1 million barrels of crude oil. The price in the future contract
It is May 15. An energy importer has negotiated a contract to buy 1 million barrels of crude oil. The price in the future contract is the spot price on August 15. Quotes:
Spot price of crude oil: $60 per barrel
August oil futures price: $59 per barrel
a) What position should the importer take to hedge the crude oil price volatility and buy crude oil at $59 per barrel on August 15?
b) Describe the cash inflows and outflows from buying crude oils and future contracts when crude oil price ends with $50 and $70 on August 15, respectively.
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Fundamentals of Financial Accounting
Authors: Fred Phillips, Robert Libby, Patricia Libby
5th edition
78025915, 978-1259115400, 1259115402, 978-0078025914
