Question:
word " hedging " means in this context..I appeared in the Economic times, in India today ie 6th Dec
Answers:
My father died in a plane crash of a private plane in Pa. in late 1947 or early '48. How would I get informati
"hedging" from a financial point of view, comes from the phrase "to hedge your bets" Because the price of oil is very volotile at the moment, airlines want to offset the risk of buying fuel at high prices as much as possible. To do this, they can both long and short the price of the fuel, Long is to buy, short is to sell, that way, if there is a huge spike in the price, they excersise the shorts, and complete the longs, there average price is then reduced.
Boeing 737NG CBT?
Typically an airline (Southwest in the US is famous for this strategy) will buy crude oil futures contracts. Since jet fuel is refined from crude oil, a rise in jet fuel prices will typically be accompanied by a rise in crude oil prices. The gains that the airline realizes from closing out its positions in the crude oil futures help it offset the higher expense of jet fuel. The downside to this strategy is that during a time of falling crude oil prices, the company will effectively spend too much money on fuel. This risk is offset by the relative expense stability that hedging offers, which allows the airline to better plan its service and keep prices low during oil price shocks.
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