Snooky Inc believes its biggest risk is that fuel prices increase and require it to raise its prices. Accordingly it decides to hedge this risk by purchasing a forward of 10M barrels of fuel. Let’s assume the price of the contract is $100/barrel. If the price of fuel increases to $105 by the end of the contract, how much will Snooky pay per barrel for it’s fuel? Show all work.
How much total money would Snooky have saved or lost if it hadn’t entered into the forward contract? Show all work.