The Apprentice Asia Episode 5 must be of the most confusing episode yet. Why was the apprentices-to-be tested on their knowledge of the financial market and was expected to make money in 24 hours?

Making money in 24 hours seems like a speculator game. Shouldn't be the Apprentice be more of an investor?

"I don't like losing," said Mr Tony Fernades.

Not surprising, since AirAsia reported loses in 2008 after some bad decisions in hedging against oil prices rising.


AirAsia has said that they have call options to offset the losses made on the previous call option that spooked the market. This will cover their position for approximately 6 months even if oil prices were to go as high as US$130 per barrel. They also clarified that when they took up their earlier hedge (July 2007), they felt that oil will only reach US$90 as a result of excessive speculative market action in that commodity and therefore decided to bet that oil prices will stay below US$90.

Some analysts have questioned the need for a complicated oil hedging strategy by AirAsia. In response they said that due to the high volatility in oil prices, they are of the view that adopting a static hedged approach (through fixed/plain vanilla swaps) at current price levels would involve taking excessive risks. If they were to opt for a fixed swap now and should fuel prices retrace subsequently, they would be left with effectively an obligation to purchase expensive fuel with no room to manoeuvre out of the position. That's the logic behind their dynamic approach and layered fuel hedge structures.

Hopefully, the next few episodes can be more of a business challenge for the apprentices-to-be rather than that looking at encouraging speculation.


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