Chapter 24 Weather, Energy, and Insurance Derivatives

8) Which of the following is a common use of weather derivatives?

A) Hedge the volume of electricity that will be demanded by customers in the summer

B) Hedge the price of oil that must be purchased in the winter

C) Hedge the price of electricity that must be purchased in the summer

D) Hedge the price and volume of gas that must be purchased for heating in the winter

9) Which of the following describes the period during which a "5 times 8" contract provides electricity?

A) From 11pm to 7am on five successive days

B) From 8am to 4pm on five successive days

C) For any 5 hours of a day on 8 successive days

D) For any 8 hours of a day in five successive days

10) Which of the following describes the period during which a "5 times 16" contract provides electricity?

A) From 7am to 11pm on five successive days

B) From 4pm to 8am on five successive days

C) For any 5 hours of a day on 16 successive days

D) For any 16 hours of a day in five successive days

11) Which of the following is NOT true about electricity?

A) Supply and demand for electricity are matched within 140 control areas in the US, then excess power sold to other control areas

B) The ability to sell excess power is constrained by transmission capacity

C) Electricity is a commodity that can be easily stored

D) Air conditioning is a big use of electricity

12) Where are oil, gas, and electricity derivatives traded?

A) On exchanges and the OTC market

B) On exchanges, but not on the OTC market

C) On the OTC market, but not on exchanges

D) Oil is traded in both markets, but the other two are traded only in the OTC market

13) Which of the following is NOT seasonal?

A) Spot electricity

B) Spot natural gas

C) Electricity futures prices

D) Spot price of corn

14) How can an energy producer hedge its risks?

A) Use weather derivatives for price risk and energy derivatives for volume risk

B) Use energy derivatives for price and volume risk

C) Use energy derivatives for price risk and weather derivatives for volume risk

D) Use weather derivatives for price and volume risk