Guidebook for Evaluating Fuel Purchasing Strategies for Public Transit Agencies (2012) / Chapter Skim
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Pages 59-64
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From page 59... ...
59 Glossary A Adverse Basis Risk In the context of a hedging strategy, this risk occurs when losses from an organization's physical fuel/energy contract are not offset by profits from the organization's hedging instruments. This problem can arise when the fuel contract is based on a price index that does not corre late perfectly with the price index referenced by the hedging product.
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From page 60... ...
60 Guidebook for Evaluating Fuel Purchasing Strategies for Public Transit Agencies Collar An options strategy that places a cap on upward price movements and a floor on downward price movements. Collars are created by pur chasing outofthemoney call options and selling outofthemoney put options.
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From page 61... ...
Glossary 61 F Firm, Fixed-Price Supply Contracts A physical fuel or energy supply contract in which prices for future delivery are set in advance, usually for a fixed volume of fuel. Fixed-Duration The process of hedging forward fuel or energy consumption within a fixed budget period (i.e., budget year)
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From page 62... ...
62 Guidebook for Evaluating Fuel Purchasing Strategies for Public Transit Agencies Long Position If an organization is long an asset, it gains money when asset prices increase and loses money when asset prices decrease. Long-Term, Fixed-Margin Contracting Entering into a physical fuel supply contract over a longterm period (>1 year)
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From page 63... ...
Glossary 63 Options Premium A payment, typically made upfront, that compensates the seller of an options contract for providing capprice or floor price protection. OTC Swaps Several consecutive forward contracts that are traded over the counter.
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From page 64... ...
64 Guidebook for Evaluating Fuel Purchasing Strategies for Public Transit Agencies Reference Price The specific price index referenced by a hedging instrument for calcu lating payouts. Price indices typically track a particular fuel or energy product in a particular geographic location (i.e., heating oil in New York Harbor)
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