1. Why do firms like Southwest hedge? What are the benefits of hedging? (Suggestion: refer to Carter, Rogers and Simkins (2004) for assistance in answering this problem).
2. Describe how a market in backwardation or contango (i.e. shape of the forward curve) might impact hedging strategies Are current crude oil markets in backwardation or contango? (Note: backwardation is the market situation when figures prices are progressively lower in the distant delivery months when compared to the nearest (prompt) month. Contango, the opposite of backwardation, is a market situation in which prices in later delivery months are progressively higher than in the nearest delivery (prompt) month.)