J&l Harvard Business Case Study

Loi Nguyen ECB 352 J & L Railroad Assignment Questions 1. Should J & L environ all of its exposure to diesel engine preempt? What percentage of the 4.5 one thousand million gallons per month would you dishearten? Yes they should hedge but not deprivations all of its exposure to diesel fuel. Since the 4.5 million is just an anticipate amount of fuel, J&L cannot achieve a consummate(a) hedge in the prox. They should prefigure the spotless demand for fuel next year. 2. What are the pros and cons of employ NYMEX resolutions versus using the risk-management products offered by Continental Bank? Is the use of a periodic average value a net receipts or disadvantage to J & L? Using NYMEX contracts will defame the asset mismatch aspect of basic risk, along with a better liquidity. However, since diesel fuel is not a traded commodity, it cannot be directly hedged and J&L will deport a original amount of basis risk. J&L will as well need to post a margin for their future contracts at NYMEX. Using product offered by Continental Bank would control a higher salute for J&L, and illiquid compared with NYMEX. However, they wont need to post a margin at the fountain of the contract. The use of a monthly average price a net would be an advantage to J&L. 3. Using the estimate of 4.

5 million gallons per month, how would you fox up a futures hedge for the next 12 months? How would you concept a commodity-swap hedge? In prescribe to invent a future hedge, J&L should short a future contract. (in order to gain from the price decrease) In order to construct a commodity- swap hedge,! J&L need to administer a floor while simultaneously debase a diadem 4. Should Craft consider using a cowl as a hedge? What strike price(s) for the cap(s) would you recommend he use to construct a hedge for the next 12 months? Craft should consider using a cap as a hedge since the bank agrees to pay the excess of the real price over the cap price for a contract quantity of heating oil over the contract. J&L...If you unavoidableness to film a full essay, order it on our website: OrderCustomPaper.com

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