Your company must purchase 1,134,000 gallons of heating oil in five months. Heating oil futures are available for 42,000 gallons. How can you hedge this position?

Question

Quizplus · Accepted Answer

To hedge the position of purchasing 1,134,000 gallons of heating oil, the company needs to buy futures contracts. Since futures are available for 42,000 gallons, the company needs to buy 1,134,000 / 42,000 = 27 contracts to fully hedge their position. Therefore, the best choice is option C, which recommends buying 27 contracts.

Your Company Must Purchase 1,134,000 Gallons of Heating Oil in Five