Program Design And Implementation On Fuel Hedging In C Company

Company C is a domestic professional road transport logistics services business. Themain fuel of company vehicles are diesel fuel and gasoline. Fuel costs account for theproportion of the company’s main business cost more than40%. In this paper, for the problemthat turbulent fuel price led to sharp fluctuation in the net profit of Company C. By predictivehedging financial management theory, the fuel use hedging program is designed andimplemented in the company, which has certain practical significance for Company C toavoid fuel price risk.Based on the describing overview of Company C and fuel usage, this paper combinespredictive hedging theory with portfolio hedging theory, design specific programs of fuel usehedging. Firstly, combining the of analysis of domestic oil price fluctuation on the Company’snet profit volatility sensitivity to explore the approach for Company C to avoid the risk of fuelprice volatility and the necessity to hedge fuel. Secondly, according to the characteristics ofCompany C, avoiding rising fuel price as fuel hedging objective of C Corporation isdetermined. Appropriate organization is established to collect the relevant information of fuelprice change and make the dual system evaluation, in order to determine the appropriateopening and closing time. Depending on fuel consumption of Company C, combining therandom walk model to estimate the spot exposure risk, the maximum amount of hedging andhedging contracts variety are determined. Then, combining with the specific operation andfinancial condition of Company C to determine the final amount of hedging contracts andanalyze relative hedging risk. Finally, implementing the specific hedging program of fuel usein Company C, while designing appropriate risk control system.Result of the study shows that selecting small and medium road transport enterprise asCompany C to study fuel hedging problem, combining the predictive theory of hedging withportfolio hedging theory to design a workable hedging program which is then to beimplemented, have practical significance to avoid risk of rising fuel price for Company C andprovide reference for other small and medium road transport enterprises to design fuelhedging program.