Kleinsteigel Electricity contracted with Schwarzwald Coal to purchase 5 million metric tons of coal per month for the next five years at €2 million per metric ton. During that time, the price of coal rose to €2.2 million per metric ton due to a major mine collapse. Kleinsteigel was shielded by this price increase by their contract with Schwarzwald. Which derivative instrument does this scenario best represent?
A) Forward
B) Future
C) Swap
D) Option
E) Not a derivative

Question

Quizplus · Accepted Answer

The Answer of Kleinsteigel Electricity contracted with Schwarzwald Coal to purchase 5 million metric tons of coal per month for the next five years at €2 million per metric ton. During that time, the price of coal rose to €2.2 million per metric ton due to a major mine collapse. Kleinsteigel was shielded by this price increase by their contract with Schwarzwald. Which derivative instrument does this scenario best represent?
A) Forward
B) Future
C) Swap
D) Option
E) Not a derivative

Kleinsteigel Electricity Contracted with Schwarzwald Coal to Purchase 5 Million