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Outline the advantages and disadvantages of each of the hedging strategies.
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How much oil does J & L railroad use?
Using the given table for the formulation of forward hedge we have constructed the required forward hedge using the estimated monthly demand of 17.5 million gallons of oil per month, which means that our yearly demand would be 210 million gallons a year.
What does KCNB do for J & L Railroad?
KCNB provide the products to J&L Rail Road for the hedging of the diesel fuel such as Cap, Floor, Collar, and Commodity Swaps. Within these products the Cap is the call option, Floor is the Put option and Collar is the combination of the Cap as Call option and Floor as the Put option.
What is the J & L Railroad case solution?
j&l railroad case solution. Answer: J&L Rail Road should go for hedging, but it is not necessary to hedge all of its exposure as for its diesel fuel. It is because of the reason that, 17.5 million gallons are being just an expected amount of fuel and in future the perfect hedge cannot be achieved.
Why is J & L rail road not hedged?
J&L Rail Road should go for hedging, but it is not necessary to hedge all of its exposure as for its diesel fuel. It is because of the reason that, 17.5 million gallons are being just an expected amount of fuel and in future the perfect hedge cannot be achieved.
Last Update: Oct 2021
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