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Alberta Utility needs to power its generators with oil and is afraid the price of...

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Finance

Alberta Utility needs to power its generators with oil and is afraid the price of oil will continue to recover from the present spot price of $38.00 after dropping to a low of $28.00. Its needs are for 98,000 barrels. Contract size is 1,000 barrels per contract. Simultaneously, Prairie Sky is looking to hedge part of it production and enters into a forward contract. Both parties are willing to deal in November futures with a forward price of $48.00 per barrel. Set up the hedge and show the profit and loss if the spot oil prices in the future, trade at $50 per barrel.

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