Hedging Oil Consumption Essay Example | Topics and Well Written Essays - 1500 words

Hedging Oil Consumption - Essay Example There are other inherent risks associated with business such as currency fluctuations, volatility of crude oil prices and so on. In order to reduce exposure to volatility in the market, many participants prefer hedging strategies using derivatives. A derivative is a financial instrument which derives its value from the underlying asset. One of the hedging strategies alternatives that are available to the market participants is by using futures derivative. The main purpose of futures markets is to minimise uncertainty in transactions and hence reduce risk. The basic objective of futures market is to hedge the associated risk by taking such a position so as to neutralize possibility of risk as far practicable. A futures contact is a standard contract between two market participants to buy or sell a specific asset of standard quality, quantity for a given price agreed upon on the date of contract (also known as strike price) with payment and delivery occurring at maturity date. The cont racts are standard in the sense that quantity, quality, price, strike price, delivery date, initial margin, marking to market, etc. are done via intermediary and not directly negotiated between parties involved in transaction. Hence, the refinery may enter into futures contract with its customers giving them the opportunity to purchase oil at current prices at a later date in future. In this way even if the prices of oil rises in future, the refinery would not require to pass on the higher costs to their customers (CME, 2006, pp.49-53). After discussing the concept of futures, it is now important to illustrate how futures might help the US Gulf refinery to hedge risk. There are two different methods of hedging namely short hedge and long hedge. A short hedge is suitable when the hedger owns the asset (as in this case) and expects it to sell at some time in future. Thus, the oil refinery may take short position in futures contract. A long hedge on the other hand involves taking the l ong position (buy at later date). This strategy is suitable when the hedger (in this case customer) knows that it will have to purchase a particular asset in future but would like to purchase at current price. In both the strategies payment and deliver occurs at maturity of contact which is usually three months. To further illustrate these strategies in details, consider the following example: Assuming that on June 13 (present) the oil refinery has taken a short position by negotiating a contract to sell 1 million barrels of crude oil. It is also agreed that the price applicable in the contract will be on the market price of September 13. So, for each 1% rise, the producer will gain $10,000 and similarly for each 1% decline in price refinery will lose $10,000. The standard futures contract on CME platform is 1,000 US barrels (or 42,000 gallons), hence the company can hedge exposure by shorting 1,000 September futures contracts. If the last trading close price was $90 per barrel, str ike price is $85 and assuming that price per barrel in September is actually $80, then per barrel gain of the oil refinery would be $5 (since, $85 - $80). This means the total gains for entire contract would be $5000 ($5 x 1000). Using the above example the long hedge strategy can be explained as

The Management Roles of a Principal Essay Example | Topics and Well Written Essays - 500 words

The Management Roles of a Principal - Essay Example From this paper, it is clear that courses offered once, as well as the availability of teachers, influence the schedule’s development. Together with the principal, the counselor does the actual work, remembers not to schedule courses at the same time, and considers to accommodate the schedule of teachers. In making adjustments, the principal and the counselor make an initial run through to determine arising conflicts. The district provides a computer program called TEAMS to help manage the schedule. The guidance office, as well as the principal, makes the final approval. As the paper outlines budget management is also part of the role of an administrator. However, the central office is the one responsible for allocating the budget, as well as in providing assistance. In preparing the budget, the goal is to look at the needs of the campus and try not to exceed in its allocation. Budget management process begins towards the end of the year and extends into the Summer months since the school does not have the actual budget until the start of the next school year. Campuses receive their budget allocations after September 1, which includes general operating funds, special education, title funds, and compensatory education funds, as well as the travel and staff development. The Site-Based Decision Making (SBDM) committee, which is composed of teachers, parents, and community leaders helps the principal in making sure that the whole management process is thoroughly made. Allocating the funds is the last step of the process, and the budget is then finalized before September 1st.