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Oshkosh Corp. decides to hedge its fleet fuel cost for the next several months as they are afraid the prices of gas may go up. They know they will need to buy 1,000,000 gallons of fuel in approximately 2 months. Oshkosh's risk manager notes that unleaded fuel contracts trade at the CME and the contract size is 42,000 gallons per contract. Currently the market price of fuel is currently USD 3.50 per gallon. Futures prices are USD 3.47 per gallon. Assume over the next two months the price of gas increases by 50 cents per gallon. Also assume, the futures price increases 50 cents per gallon.
Problem 1: How did this hedge perform? (Consider creating and filling out a table like we did with Starbucks and Nestles)
Problem 2: What type of hedge should Oshkosh Corporation set up (long or short)?Problem 3: How many fuel contracts should they use (buy or sell)?Problem 4: What is the net gain/lose (to answer this questions first answer the two questions below)?Problem 5: How much does Oskosh lose in the spot market by buying fuel after the price increases?Problem 6: How much does Oshkosh gain in the futures market by hedgi
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