1. It is June 8 and a company knows that it will need to purchase 20,000 barrels of crude oil at some time in October or November. Oil futures contracts are currently traded for delivery every month and the contract size is 1,000 barrels. The company therefore decides to use the December contract for hedging. The futures price of December contract on June 8 is $28.00 per barrel. How should the company hedge? Select one: a. Long position in 20 futures contracts b. Short position in 20 futures contracts c. Short position in 28 futures contracts d. Long position in 28 futures contracts O00
1. It is June 8 and a company knows that it will need to purchase 20,000 barrels of crude oil at some time in October or November. Oil futures contracts are currently traded for delivery every month and the contract size is 1,000 barrels. The company therefore decides to use the December contract for hedging. The futures price of December contract on June 8 is $28.00 per barrel. How should the company hedge? Select one: a. Long position in 20 futures contracts b. Short position in 20 futures contracts c. Short position in 28 futures contracts d. Long position in 28 futures contracts O00
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:1. It is June 8 and a company knows that it will need to purchase 20,000 barrels of crude oil at some time in October or November.
Oil futures contracts are currently traded for delivery every month and the contract size is 1,000 barrels. The company therefore
decides to use the December contract for hedging. The futures price of December contract on June 8 is $28.00 per barrel. How
should the company hedge?
Select one:
a. Long position in 20 futures contracts
b. Short position in 20 futures contracts
c. Short position in 28 futures contracts
d. Long position in 28 futures contracts
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