Purchase Solution

Risk Management and Hedging Using Forwards

Not what you're looking for?

Ask Custom Question

You have been hired by Amerikan Airlines. Your primary task 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

With these objectives you need to develop Hedging strategies 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.

Purchase this Solution

Solution Summary

Discusses protection from fluctuating fuel costs by hedging.

Solution Preview

The company would need to hedge its purchases by purchasing futures or forward contracts available in the financial markets. The company can buy futures covering its purchases for the year and thus, lock-in the ...

Solution provided by:
Education
  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
Recent Feedback
  • "Thank you. "
  • "Thank you"
  • "Thank you. I got 20/20 last week for my discussion you help me out with."
  • "Thank you. Great Job. "
  • "Thank you. Great Job. "
Purchase this Solution


Free BrainMass Quizzes
Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Basics of corporate finance

These questions will test you on your knowledge of finance.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.