Question

In which case is your physical exposure short, and you need to long futures to hedge?

		You are a farmer growing soybeans
		You have international operations and receive revenues in foreign currency
		You bought a market ETF
		You are an airline and you need to purchase jet fuel for your operations

Answer 1

When you are an airline company and you will be needing to purchase the jet fuel for your operations than your physical exposure is short because you will want that oil prices should be going down because the overall cost should be going down so you will be purchasing long futures to hedge.

So, the real exposure of the airline company is on the down side because they will always want the oil prices to go down so their overall cost decreases and they will be trying to hedge it through taking long positions in the futures market.if they are already purchasing the jet fuel and then they are trying to go long over the oil, then it will mean that they will have the double exposure so they will have to go short on the oil in order to hedge their position.

other options are having physical exposure of net long because the farmer will be wanting the soyabean price to go up and one will want the foreign currency value to go up and one will also want the market ETF to go up so they will be taking short position to hedge.

Correct answer will be option (d) you are an airline and you need to purchase jet fuel for your operation.