Accounting & Investing Info for San Antonio A & M
Chrysler is offering a guarantee against gasoline price increases. Along wtih the purchase of certain vehicles, Chrysler will guarantee the buyer that the buyer will pay no more than $2.99 per gallon on 700 gallons of gasoline- for the next three years. At 20 mpg that would take you 14,000 miles per year.
Now I have preached about futures, derivatives, and hedging. How would Chrysler hedge against a possible further gasoline price hike the next three years ? Any posts on this one?
could we hedge against the dollar, maybe investing in foriegn currencies. that way if the price of gas does go up we could make up the difference in the forign market?
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could we hedge against the dollar, maybe investing in foriegn currencies. that way if the price of gas does go up we could make up the difference in the forign market?
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The risk to Chrysler is not one of currency fluctuation. If say Chrysler were selling cars in France and needed to bring the profits back in dollars, the risk would be that the dollar would decline against the Franc or Euro. That is not the risk here, the risk is against the unknown future of gasoline prices.
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Professor Elam 
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