Midwest Airlines is short 2 million gallons of jet fuel. Since no jet fuel contract exists, they decide to hedge with crude oil futures. The price of jet fuel is currently $2.70 per gallon and the price of crude oil is $99 per barrel
Assuming they hold the correct number of crude oil futures contracts, what crude oil price will be needed to perfectly hedge an increase in jet fuel prices to $2.84 per gallon?
A)
$ 2.84
B)
$ 94.12
C)
$ 99.00
D)
$ 104.13
Answer:
A, D
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