Answer: an excess return swap.

## Explanation An airline hedging against rising fuel prices would most appropriately use an **Excess Return Swap**: **Why Excess Return Swap is appropriate:** - Airlines are primarily concerned with **price changes** in fuel costs - They want to hedge against **rising prices** specifically - Excess return swaps provide exposure to price appreciation/depreciation only - They don't include collateral returns or other components **How it works:** - The airline would receive the excess return (price change) of the fuel commodity - If fuel prices rise, the swap pays the airline to offset their higher costs - This directly addresses their price risk exposure **Other options:** - **Basis swap**: For hedging basis risk between different commodities - **Total return swap**: Includes collateral returns, which airlines don't need for pure price hedging Therefore, **C: an excess return swap** is most appropriate for hedging rising fuel prices.

Author: LeetQuiz Editorial Team