This is referred to as “Cross hedging” and it involves using futures on a similar or closely related commodity. (ref). The USA does not trade in Jet Fuel contracts and as such‚ airlines use Futures on crude or heating oil to hedge jet fuel purchases. (Cobbs Alex). These futures contracts are based on the underlying commodity which may be crude oil or heating oil‚ not jet fuel‚ and as such‚ they introduce basis risk due to
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2011 FRM® Examination AIM Statements 2011 Financial Risk Manager (FRM®) Examination AIM Statements Topic Outline‚ Readings‚ Test Weightings The Study Guide sets forth primary topics and subtopics under the five risk-related disciplines covered in the FRM exam. The topics were selected by the FRM Committee as topics that risk managers who work in practice today have to master. The topics are reviewed yearly to ensure the FRM exam is kept timely and relevant. Readings Questions for the FRM
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737 jets from Boeing. The total purchase price was $500‚000‚000‚ which was payable in U.S. dollars on delivery of the aircrafts in one year. Chairman Ruhnau chose a partial cover by hedging 50% of the exposure with forward contracts‚ which was $250 million at the one year forward rate of DM3.2/$. He left the remaining 50% ($250 million) uncovered. Due to this decision‚ Lufthansa paid DM225‚000‚000 more than if Ruhnau would have chosen to not hedge at all or DM196‚000‚000 if he chose the put
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E. and Erik C. Chiprich‚ 2001‚ Major U.S. Carriers 2000 Results and 2001 Outlook‚ Global Research‚ Ing-Barings. Reuters‚ 2004‚ “Soaring Jet Fuel Prices Threaten Airlines’ Bottom Lines”‚ March 10. Schap‚ Keith‚ 1993‚ “Jet Fuel Swaps Ground Risk”‚ Futures (February)‚ 44-46. Trottman‚ Melanie‚ 2004‚ “Outside Audit: Jet-Fuel Bets Are Risky Business”‚ Wall Street Journal‚ February 24‚ page C3. 12 Review copy for use of the Case Research Journal. Not for reproduction or distribution. Table 1 Fuel Usage
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risk and the other one is transaction risk. The company’ is looking at different hedging strategies to mitigate the risks and dealing with the matter exceptionally from the company’s policy. In order to that different instruments (options and forward contracts) should be analyzed for different level of hedge
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AFM 322 Hedging Currency Risk at AIFS 1. Case Synopsis Christopher Archer-Lock and Becky Tabaczynski both work for American Institute for Foreign Study (“AIFS”). Archer-Lock is the controller of AIFS and Tabaczynski is the CFO of AIFS’s high school travel division ACIS. AIFS a student exchange organization that organizes educational and cultural exchange programs throughout the world. Founded in the U.S. in 1964‚ AIFS has annual revenues of close to $200 million and sent more than 50‚000 students
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can address other issues as well within the format constraints. 1. What are Diva’s projected profits for the fiscal year ending September 1995? 2. What factors affect a firm’s exposure to exchange-rate risk? 3. "Forward traders quoted forward and futures prices based on the difference between foreign and U.S. interest rates." Explain what this means in your own words and why ? 4. "In addition‚ some of Diva’s foreign exchange risk was reduced by offsetting inflows and outflows
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impact of unforeseen geo-political influences and the slow speed of adjusting supply to demand. Freight price risk is thus the risk of loss arising from unexpected changes in freight rates. As a result‚ shippers commonly buy and sell futures contracts called freight forward agreements based on the Baltic Dry Index of bulk rates to hedge against the risk that a rise or fall in the spot rate might cut into the profit they expect from the voyage. 2) Fuel price risk Fuel prices take up a large amount
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dollar relative to the yen is 4%. a. Provide a qualitative description of Intel’s transaction exchange risk. Answer: Intel is a U.S. company‚ and it is scheduled to receive yen in the future. A weakening of the yen versus the dollar causes a given amount of yen to convert to fewer dollars in the future. This loss of value could be severe if the yen depreciates by a significant amount. b. If Intel chooses not to hedge its transaction exchange risk‚ what is Intel’s expected dollar revenue
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Dozier Industries has entered into an international sales transaction. As part of this contract‚ Dozier will be installing an internal security system for a manufacturing firm in UK‚ for which Dozier has already received 10% down payment and it is expected to receive another GBP 1‚175‚000.00 in 3 months. Dozier’s costs are in USD‚ however its sales payment will be in GBP. Dozier is facing an exchange rate risk‚ especially since GBP has already depreciated by 2.3% between the time sales bid( in GBP)
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