How could an oil refiner hedge the risk of an agreement to supply 50,000 barrels of oil each month for a year at a fixed price? The oil refiner could enter a:
I. long futures contract position for every month for 50,000 barrels. II. short futures contract position for every month for 50,000 barrels. III. long near-term futures contract for 600,000 barrels. IV. short near-term futures contract for 50,000 barrels.
A. I and III only. B. I only. C. II only. D. II and IV only.
The oil refiner could enter into a strip hedge, by obtaining a long futures contract position for every month of the year for 50,000 barrels. Alternatively, the oil refiner could create a long position of a near-term futures contract for approximately 600,000 barrels.
