Risk Management and Hedging Using Forwards
is to keep the Airline in Business and to ensure that you have to accomplish
these two goals:
1. Keep airfares low and at a comparable steady price
throughout the year
2. Protect the airline from fluctuating fuel costs
in the Forward Market. An historical Review reveals that the Airline consumes 1
million barrels of fuel during the planned horizon and the price of fuel has
fluctuated in the previous 5 years from $30.00 to $145.00. Fuel cost represents
about 35% of the cost of operation and is next in importance to salaries and
wages.
Identify the steps you would initiate to protect the company
from fluctuating fuel costs and achieve your above two objectives.
ScholarMatic: Explanation & Answer
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