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Oil is selling at a spot price of $42.00 per barrel. Oil can be stored at a cost of $0.42 per barrel ...

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Oil is selling at a spot price of $42.00 per barrel. Oil can be stored at a cost of $0.42 per barrel ...

Oil is selling at a spot price of $42.00 per barrel. Oil can be stored at a cost of $0.42 per barrel per month. The opportunity cost of capital is 7.2% per year (or 0.6% per month). What is the gain or loss realized by an oil refinery that floats its exposure and purchases oil on the spot market in 2 months at a price of $43.00 per barrel, instead of hedging with a forward contract?
A) $0.35 gain
B) $0.35 loss
C) $1.00 gain
D) $1.00 loss

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Derivatives Markets

Edition: 3^rd

Author: McDonald

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