Northern Refineries does not avoid risk

Northern Refineries does not avoid risk

1. “Northern Refineries does not avoid risk by selling oil futures. If prices stay above $1.60 a gallon, then it will actually have lost by selling oil futures at that price.” Is this a fair comment?

2. Calculate convenience yield for magnoosium scrap from the following information:

• Spot price: $2,550 per ton.

• Futures price: $2,408 for a one-year contract.

• Interest rate: 12%.

• Storage costs: $100 per year