The Assignment Needs Detail Understanding Of Hedging And Derivatives You Have To Be 2324793

The assignment needs detail understanding of hedging and derivatives. You have to be very specific and to the point when you answer the questions asked in the assignment. There are three questions one has to be answered in approximately one page the other two in approximately half a page each Document Preview:

Airline hedging The goal of this project is to determine the trades Qantas would need to make at the end of a financial year to hedge (part of) its exposure to jet fuel prices over the next financial year. At the end of June 2014, you are being hired by Qantas management to develop a jet fuel hedging strategy for the 2014-2015 financial year. Data In the Excel workbook available on the LMS, you will find end-of-quarter prices for the spot jet fuel (kerosene) contract in USD per gallon (3.785 litres), as well as the end-of- quarter prices of futures contracts in crude oil in USD per barrel (158.97 litres) and natural gas in USD per Million British Thermal Units (MBTU). A crude oil futures contract specifies delivery of 1,000 barrels, and a natural gas futures contract specifies delivery of 10,000 MBTU. Prices are observed at the end of the September, December and March quarter. For the futures data, the delivery is for the next quarterly expiration. That is, the price recorded at the end of September is for the futures contract that expires in December, the price recorded at the end of December is for the futures contract that expires in March and the price recorded at the end of March is for the futures contract that expires in June. In addition to the data in the Excel sheet, you may use that the spot prices for jet fuel on 30/06/2013 and 30/06/2014 were USD 3.014 per gallon and USD 1.666 per gallon, respectively. Background Qantas consumed about 4.6 billion litres of jet fuel during the 2013-2014 financial year (Qantas Fuel Efficiency Report). Let’s assume that use has remained constant for a while and is therefore also the expected use during the 2014-2015 financial year. Qantas buys its jet fuel quarterly in advance. That is, at the end of June 2014, Qantas purchases ¼ of its forecasted annual jet fuel use in the spot jet fuel market for use between July and September 2014. At the end of September 2014, Qantas buys ¼ of its forecasted annual jet fuel…

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