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### Author Topic: [-] Fuel Hedging  (Read 463 times)

#### Minto Typhoon

• Members
• Posts: 1026
##### [-] Fuel Hedging
« on: July 12, 2012, 05:57:09 AM »
Although working as designed, there is an error in the logic behind how the fee on top of fuel pricing is measured when I hedge fuel.

If I sign a 12 month 100% fuel hedge contract, I pay a 7.5% fee on top of the fuel price

If I sign ten 12 month 10% fuel hedging contracts I pay a 0.7% fee on top of the fuel price

Surely the fuel price change risk on both examples above remains remains the same for the bank, so the fee should be the same for both - based around time - rather than % hedged?
« Last Edit: July 12, 2012, 12:43:40 PM by sami »

#### Jona L.

• Former member
##### Re: Fuel Hedging
« Reply #1 on: July 12, 2012, 12:04:11 PM »
Although working as designed, there is an error in the logic behind how the fee on top of fuel pricing is measured when I hedge fuel.

If I sign a 12 month 100% fuel hedge contract, I pay a 7.5% fee on top of the fuel price

If I sign ten 12 month 10% fuel hedging contracts I pay a 0.7% fee on top of the fuel price

Surely the fuel price change risk on both examples above remains remains the same for the bank, so the fee should be the same for both - based around time - rather than % hedged?

you pay the 0.7% for each contract thus you pay 7% on top

#### Sami

• Members
• Posts: 15918
##### Re: Fuel Hedging
« Reply #2 on: July 12, 2012, 12:43:29 PM »
Yes, in my mind this works just fine, as the total volume of fuel you are hedging is less, thus bank's risk is less too (compared to 100%).

#### chiveicrook

• Members
• Posts: 200
##### Re: [-] Fuel Hedging
« Reply #3 on: July 12, 2012, 12:58:47 PM »
It might make sense to forbid getting 10 hedge contracts on the same day....

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