Exxon Mobil has excess inventory of 60 million barrels of WTI crude oil and the company needs to sell the excess inventory. It is trying to hedge its exposure using futures contract that expires in one year. WTI price has 82% correlation with Nigerian Bonny Light price and 88% correlation with Brent blend oil price. The annualized standard deviation of daily prices of Bonny Light is 0.52 and that of WTI and Brent are 0.45 and 0.42 respectively. How should Exxon Mobil hedge the exposure There is no tailing of hedge. O Short 49.280 million barrel of Bonny Light O Short 49.280 million barrel of Bonny Light O Short 56.574 million barrel of Brent blend O none of these O Long 56.574 million barrel of Brent blend

Exxon Mobil has excess inventory of 60 million barrels of WTI crude oil and the company needs to sell the excess inventory. It is trying to hedge its exposure using futures contract that expires in one year. WTI price has 82% correlation with Nigerian Bonny Light price and 88% correlation with Brent blend oil price. The annualized standard deviation of daily prices of Bonny Light is 0.52 and that of WTI and Brent are 0.45 and 0.42 respectively. How should Exxon Mobil hedge the exposure There is no tailing of hedge. O Short 49.280 million barrel of Bonny Light O Short 49.280 million barrel of Bonny Light O Short 56.574 million barrel of Brent blend O none of these O Long 56.574 million barrel of Brent blend

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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Question

Exxon Mobil has excess inventory of 60 million barrels of WTI crude oil and the company needs to sell the excess inventory. It is trying to
hedge its exposure using futures contract that expires in one year. WTI price has 82% correlation with Nigerian Bonny Light price and
88% correlation with Brent blend oil price. The annualized standard deviation of daily prices of Bonny Light is 0.52 and that of WTI and
Brent are 0.45 and 0.42 respectively.
How should Exxon Mobil hedge the exposure
There is no tailing of hedge.
Short 49.280 million barrel of Bonny Light
Short 49.280 million barrel of Bonny Light
Short 56.574 million barrel of Brent blend
none of these
O Long 56.574 million barrel of Brent blend

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