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Company X, which is a chemical manufacturer, uses crude oil and buys it in the spot market on a monthly schedule. A crude oil swap is quoted by the dealer at $25. Which of the following statements is correct?a. The company should sell the swap to hedgeb. In a month when the spot price of oil is above $25, the company will pay the difference to the counter partyc. In a month when the spot price is below $25, the company will pay the difference to the counter party

Respuesta :

Answer:

c. In a month when the spot price is below $25, the company will pay the difference to the counter party

Explanation:

  • Since Company X uses crude oil, the company buys the swap to hedge in the swap market, so option A is not appropriate because it buys the swap, which pays the counterparty when the spot price falls below $ 25.
  • so correct option is c. In a month when the spot price is below $25, the company will pay the difference to the counter party

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