View the step-by-step solution to:


1.    Shell Oil Refinery expects to pay for 100,000 barrel of crude oil at close of day on Friday, January

31. They want to hedge their position with crude oil futures. Assume that they enter into the position at close of day on Tuesday, January 28.  The size of one crude oil futures is 1,000 barrel. Futures and spot data is provided in the file HW2_data.doc.

a.    Describe the position they should enter (long or short, contract month).

b.    Compute the hedge ratio using data from HW2_data.xls file.

c.    How many contracts do they need to buy or sell?

d.    Document the price gain or loss every day that their position is open.

e.    What is the total cost after they have closed out their futures position, and made their payment?

f.     What is the effective cost per barrel?

Screenshot (714).png

Screenshot (714).png

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Let our 24/7 Finance tutors help you get unstuck! Ask your first question.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors