use of the Case Research Journal. Not for reproduction or distribution. Fuel Hedging in the Airline Industry: The Case of Southwest Airlines By Dave Carter‚ Dan Rogers‚ and Betty Simkins “If we don’t hedge jet fuel price risk‚ we are speculating. It is our fiduciary duty to try and hedge this risk.” Scott Topping‚ Director of Corporate Finance for Southwest Airlines June 12‚ 2001: Scott Topping‚ the Director of Corporate Finance for Southwest Airlines (hereafter referred to as “Southwest”)
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of the yen against the dollar was observed from 1983 to 1993‚ but there was evidence that the yen was overvalued against the dollar in 1993‚ and thus a distinct probability that the yen may eventually crash. Therefore‚ Tiffany needs to actively hedge the yen-dollar exchange rate risk especially from Exhibit 7 considering the potential depreciation of yen which would have a negative impact to Tiffany’s financial results. The yen-dollar exchange rates would have different ways to be exposed to Tiffany’s
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the price may decline‚ he can hedge by selling 100 tons of September wheat futures at a price that is set today. Farmer has to make delivery. On the opposite a miller will buy wheat after the harvest. The miller agrees to take delivery of wheat in the future at a price that is fixed today without option. The farmer has hedged risk by selling wheat futures; this is termed a short hedge. The miller has hedged risk by buying wheat futures; this is known as a long hedge. The price of wheat for immediate
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hedgerows decreased by 28% in Britain between 1945 and 1974 (Vincent‚ 1990). This was followed by a net loss of 23% hedgerows (about 130‚000 km) between 1984 and 1990. Between 1978 and 1990 on average one plant species was lost from each 10 metres of hedge‚ an 8% loss of plant species diversity (Department of Environment‚ 1994). Hence‚ ancient and species-rich hedgerows have now been identified as ‘priority habitats’ (The UK Biodiversity Steering Group‚ 1995). Research and action to protect these features
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In recent years there has been considerable growth in the use of credit derivatives‚ which protect lenders against the risk that a borrower will default. For example‚ bank A may be reluctant to refuse a loan to a major customer (customer X) but may be concerned about the total size of its exposure to that customer. Speculators in search of large profits (and prepared to tolerate large losses) are attracted by the leverage that derivatives provide. By this we mean that it is not necessary to lay out
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But there were concerns that airlines would suffer losses‚ because of WTI’s hedge ineffectiveness‚ which had been caused by a major development in the oil market: WTI‚ the main U.S. oil price benchmark‚ had become less well correlated with the global crude oil market (ref). In this case study report we discuss hedging and various
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I would hedge the Japanese Yen to start. There are valid non-speculative reasons to hold puts on yen. Fluctuations in the price of the yen will lead to fluctuations in the price of the competition’s products and a weak yen would make Japanese yen less expensive‚ in turn increasing demand. The cash flows received on the hedging instrument (the derivative) will offset the cash flows received on the hedged item. The automotive industry is bearish and holding puts on the yen hedges this risk
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{draw:rect} {draw:rect} {draw:rect} {draw:rect} Risk Management practices by Royal Dutch Shell plc {draw:frame} Risk factors considered by Royal Dutch Shell plc Prices of oil‚ natural gas‚ oil products and chemicals are affected by supply and demand. Factors that influence these include operational issues‚ natural disasters‚ weather‚ political instability‚ or conflicts‚ economic conditions or actions by major oil-exporting countries. Price fluctuations can test our business assumptions‚ and can
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the company will issue the debt‚ hence will increase the cost of debt. So to hedge the interest rate risk the treasurer decided to hedge the risk using September Eurodollar futures contract. September 90-day Eurodollar futures contracts are currently trading at 96.25. You are required to a. Explain how treasurer can hedge the risk through Eurodollar futures contract? How many futures contracts are required to hedge? b. If the September futures contract in August closes either at 95.75 or 96
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increase a company’s value. a. True b. False Medium: (24.6) Futures market hedging FP Answer: b MEDIUM 5. The two basic types of hedges involving the futures market are long hedges and short hedges‚ where the words "long" and "short" refer to the maturity of the hedging instrument. For example‚ a long hedge might use Treasury bonds‚ while a short hedge might use 3-month T-bills. a. True b. False Multiple Choice: Conceptual Medium: (24.1) Risk management CP Answer: d
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