In common sense terms, explain why the profit-and-loss effects of a stack-and-roll hedge do not depend on the direction of change in oil prices when hedge accounting is used
What will be an ideal response?
Falling prices mean the profits are earned on the iterative series of forward contracts, but losses are incurred on the futures hedges. Hedge accounting allows the gains on all the forward contracts to be offset by losses on the futures contracts. If prices rise, just the opposite would happen.
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a. true b. false
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