Essay
In September of 2014, Gunny Corporation anticipates that the price of heating oil will increase soon, and wishes to lock in a firm price for the winter months. They enter into a forward contract with Selton Industries to buy 100,000 barrels of oil at $160 per barrel in December 2014. Selton's cost of production of the heating oil is $120 per barrel.
Required:
Determine the economic impact of the transaction to Selton (the seller of the heating oil) at the market price levels indicated in the table below, with and without the hedge.
Correct Answer:
Verified
Correct Answer:
Verified
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