Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. a company wishes to hedge its exposure to a new fu

A company wishes to hedge its exposure to a new fuel whose price changes have...

60.1K

Verified Solution

Question

Accounting

A company wishes to hedge its exposure to a new fuel whose price changes have a 0.76 correlation with crude oil futures price changes. The company will lose $300,000 for each 1 dollar increase in the price per barrel of the new fuel over the next three months. The new fuel's price change has a standard deviation that is estimated to be 30% greater than price changes in crude oil futures prices. If crude oil futures are used to hedge the exposure, what should the hedge ratio be? What is the company's total exposure measured in barrels of the new fuel? What position measured - in barrels - should the company take in crude oil futures? How many crude oil futures contracts should be traded? Assume each crude oil contract is on 1,000 gallons.

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students