You are an airline trying to hedge fuel prices. You decide to hedge with crude o

Question

You are an airline trying to hedge fuel prices. You decide to hedge with crude oil futures, as you figure that higher oil prices imply higher fuel prices. You need to short crude oil futures to hedge. (True / False)

A U.S. company has a liability of 100,000 Euro to be paid back in one year. To hedge, the company needs to buy Euro futures. (True / False)

For interest rate futures, the cash price received by the trader for the bond delivered is the same as the futures settlement price. (True / False)

Explanation / Answer

1. False.

higher oil price implied higher fuel cost, in that case long crude oil. In case the expectation are fall in price then the short future is done.

2. True

U.S. company has a liability of 100,000 Euro to be paid back in one year. To hedge, the company needs to buy Euro futures. which will save the company in case US $ falls.

3.False

For interest rate futures, the cash price received by the trader for the bond delivered is the same as the futures settlement price in case there is no changes in interest rate

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