On 1st of March the crude oil’s spot price is $50 and its August futures price is $48. On 1st of July the spot price is $62 and the August futures price is $63.50. An ABC company entered into futures contracts on 1st of March to hedge its purchase of the commodity on 1st of July. It closed out its position on 1st of July. Which position must be taken to hedge the risk and what is the effective price (after the hedging) paid by the company? Choose the right answer a. No correct answer b. Short, $15.50 c. Long, $46.50 d. Long, $15.50 e. Short, $46.50
On 1st of March the crude oil’s spot price is $50 and its August futures price is $48. On 1st of July the spot price is $62 and the August futures price is $63.50. An ABC company entered into futures contracts on 1st of March to hedge its purchase of the commodity on 1st of July. It closed out its position on 1st of July. Which position must be taken to hedge the risk and what is the effective price (after the hedging) paid by the company? Choose the right answer a. No correct answer b. Short, $15.50 c. Long, $46.50 d. Long, $15.50 e. Short, $46.50
Chapter5: Currency Derivatives
Section: Chapter Questions
Problem 3BIC
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Question
On 1st of March the crude oil’s spot price is $50 and its August futures price is $48. On 1st of July the spot price is $62 and the August futures price is $63.50. An ABC company entered into futures contracts on 1st of March to hedge its purchase of the commodity on 1st of July. It closed out its position on 1st of July. Which position must be taken to hedge the risk and what is the effective price (after the hedging) paid by the company?
Choose the right answer
a. No correct answer
b. Short, $15.50
c. Long, $46.50
d. Long, $15.50
e. Short, $46.50
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