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an airline expects to purchase 2 million gallons of jet...

Question: an airline expects to purchase 2 million gallons of jet...

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An airline expects to purchase 2 million gallons of jet fuel in 1 month and decides to use heating oil futures for hedging. The standard deviation of jet fuel is 0.0263. The standard deviation of heating oil is 0.0313. The correlation between the assets is 0.928. Each heating oil contract traded by the CME Group is on 42,000 gallons of heating oil. Which of the following statements is correct?

Select one:

a. The airline should long 37 contracts to hedge its exposure to jet fuel prices. This is NOT a case of cross hedging.

b. The airline should short 37 contract to hedge its exposure to jet fuel prices. This is NOT a case of cross hedging.

c. The airline should long 37 contracts to hedge its exposure to jet fuel prices. This is a case of cross hedging.

d. The airline should short 37 contract to hedge its exposure to jet fuel prices. This is a case of cross hedging.

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Question: an airline expects to purchase 2 million gallons of jet...

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