Question
It is May 15. An oil producer has negotiated a contract to sell 1 million barrels of crude oil. The price in the sales contract
It is May 15. An oil producer has negotiated a contract to sell 1 million barrels of crude oil. The price in the sales contract is the spot price on August 15. Quotes:
Spot price of crude oil: $60 per barrel
August oil futures price: $59 per barrel
How does the trader use the future contract to hedge the crude oil price volatility and receive $59 per barrel on August 15? Describe the cash inflows and outflows from selling crude oils and future contracts when crude oil price ends with $50 and $70 on August 15, respectively.
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
