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Today, NOV 11, firm XYZ has a contract to buy 1million units of Natural Gas (NG) on FEB 15 2022. One NG futures on NYMEX
Today, NOV 11, firm XYZ has a contract to buy 1million units of Natural Gas (NG) on FEB 15 2022. One NG futures on NYMEX is for 10,000 NG units. The firm uses h = 1 to hedge this contract. Today's spot market price of NG is $4.95/unit while the MAR futures price is $4.65/unit. Suppose that on FEB 15 the spot price turned out to be $4.50/unit and the MAR futures price on FEB 15 turned out to be $4.40/unit.
Show a complete time table to analyze the hedge.
Calculate the end result of the hedge.
Indicate whether the hedge was successful or not.
B. Now, instead of the contract to buy, firm XYZ from Q1 has a contract to sell 1million units of Natural Gas (NG) on FEB 15 2022. One NG futures on NYMEX is for 10,000 NG units. The firm uses h = 1 to hedge this contract. Today's spot market price of NG is $4.95/unit while the MAR futures price is $4.65/unit. Suppose that on FEB 15 the spot price turned out to be $4.50/unit and the MAR futures price on FEB 15 turned out to be $4.40/unit.
Show a complete time table to analyze the hedge.
Calculate the end result of the hedge.
Indicate whether the hedge was successful or not.
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Advanced Financial Accounting
Authors: Thomas H. Beechy, V. Umashanker Trivedi, Kenneth E. MacAulay
7th edition
978-0132928939
