Determine the risks faced by a reseller

Reference no: EM1355599

Suppose in six months' time the cost of a gallon of heating oil will either be $0.90 or $1.10. The current price is $1.00 per gallon.

Questions:

a) What are the risks faced by a reseller of heating oil that has a large inventory on hand? what are the risks faced by a large user of heating oil with a very small inventory?

b) How can these two parties use the heating oil futures market to reduce their risks and lock in a price of $1.00 per gallon? Assume each contract is for 50,000 gallons and they each need to hedge 100,000 gallons.

c) Can you say that each party has been made better off? Why or why not?

Reference no: EM1355599

Questions Cloud

International management managing across borders and culture : How does one successfully select an expatriate and In selecting a person for an expatriate assignment, what are the three major global mind-set attributes that successful expatriates possess?

Impairment of fixed assets : Which of the following statements concerning the impairment of fixed assets is true under US GAAP?

Illustrate young adults at random to serve in the army : Suppose a nation picks 1000 young adults at random to serve in the army. Illustrate what information do you need to determine the cost of using these people in the Army.

Piaget and vygotsky concept : As a parent of a young child, you are concerned about giving your child a head start. Which theory - Piaget's or Vygotsky's - do you like the best?

Determine the risks faced by a reseller : Assume in six months' time the cost of a gallon of heating oil will either be $0.90 or $1.10. The current price is $1.00 each gallon.

Gaap for zero-interest-bearing note : Identify the authoritative literature that provides guidance on the zero-interest-bearing note. Use some of the examples to explain how the standard applies in this setting.

What speed does the arrow leave the bow : An archer puts a 0.33 kg arrow to the bowstring. An average force of 183 N is exerted to draw the string back 1.3 m. suppose that air resistance is negligible.

Intercultural business management and ethics : Research and find 2-4 articles related to the influence of culture on doing business in India, the Middle East, and/or Africa.

Us gaap or ifrs system : Which is better for preventing or detecting fraud a rules based system like US GAAP or a principles based system like IFRS? Please provide the reasons for your opinion.

User Account

All Pages