
Ultimate access to all questions.
Explanation:
A producer of the commodity is exposed to a fall in the spot price, so the appropriate hedge is a short futures hedge.
If the futures contract is for 1,000 barrels, then:
So the best hedge is to short 1,000 futures contracts.
Question 151.1 An oil producer has negotiated a contract to sell one million barrels of crude oil in six months. Which is the best hedge against changes in the spot price of oil?
A
Short 1,000 futures contracts
B
Short 1,000,000 futures contracts
C
Long 1,000 futures contracts
D
Long 1,000,000 futures contracts
No comments yet.