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Drunken Sailor Oil Corporation is negotiating the purchase of 1million barrels of oil to be delivered and paid for in exactly 1year. Drunken Sailor Oil Corporation is willing to pay $25 perbarrel because they can sell the oil in advance to oil refineries.For political reasons, the oil exporter wants the contractexpressed in Danish kroner.What price per barrel of oil expressed in Danish kroner isequivalent to $25 if the Danish krone exchange rate is $0.25?If the contract is signed at a price of 110 Danish kroner perbarrel and the oil corporation does not use futures contracts, interms of U.S. dollars how much will it pay for the 1 millionbarrels of oil if the exchange rate per Danish kroner rises to$0.30?If the oil corporation buys the Danish kroner in the futuresmarkets for $0.26, how much will the oil cost in U.S. dollars (ifthe price of the oil was 110 kroner)?Returning to Drunken Sailor Oil Corporation in the problemabove. :If the oil corporation locks in an exchange rate of $0.26 perDanish krone but the exchange rate falls to $0.20 at the end of theyear, how much money will the firm have lost due to its decision touse futures contracts?If the oil corporation locks in an exchange rate of $0.16 perDanish krone and the exchange rate rises to $0.25 at the end of theyear, how much money will the firm have gained due to its decisionto use futures contracts?
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