You're the purchasing manager for a large trucking company. You're planning for the December peak in deliveries and estimate you'll need 100,000 gallons of diesel oil for the month. Diesel is $3.05/gallon today. Which of the following will hedge your risk of oil prices rising between now and December 1? Choose two.
a) Enter into a physical delivery forward contract today to purchase 100,000 gallons of diesel oil on December 1 at $3.15/gallon
b) Enter into a physical delivery forward contract today to sell 100,000 gallons of diesel oil on December 1 at $3.15/gallon
c) Enter into a cash settled forward contract today to purchase 100,000 gallons of diesel oil on December 1 at $3.15/gallon
d) Enter into a cash settled forward contract today to sell 100,000 gallons of diesel oil on December 1 at $3.15/gallon
Answer:
a) Enter into a physical delivery forward contract today to purchase 100,000 gallons of diesel oil on December 1 at $3.15/gallon
c) Enter into a cash settled forward contract today to purchase 100,000 gallons of diesel oil on December 1 at $3.15/gallon
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