What are the net swap cash flows for xyz corp

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XYZ Corp. produces 1,000,000 barrels of oil per month. XYZ Corp sells all the oil it produces at the prevailing spot price. XYZ Corp. enters into an oil swap with a Swap Dealer. Under the terms of the swap XYZ Corp. receives from the Dealer $60.00 per barrel each month and pays the Dealer the spot price of oil each month for the next 3 months on a notional quantity of 1,000,000 barrels.

Suppose that spot prices of oil, in $/bbl, over the next 3 months are 61.00, 60.25 and 59.10, respectively.

(a) What are the net swap cash flows for XYZ Corp. in each month?

(b) Combining the sale of oil at the spot prices above with the swap cash flows you found in (a), what is the effective price in $/bbl that XYZ realizes for the sale of its oil in each month? Explain.

Reference no: EM132666787

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