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now lets understand the concept of cross hedging something which we have just mentioned uh on the previous slide so as we know cross hedging is required whenever the asset underlying the futures is different than the acid being hedged so one example can be relating jet fuel requirements versus what all things are available so imagine that there is a airline company and they wish to procure jet fuel and lets say an exact contract is not available on the exchange so they could go in for some other quantity or some other asset whose futures are transacting which is very closely related to the way in which jet fuel prices move so lets say its heating oil futures so that way the requirement for hedging their exposure or hedging the prices of jet fuel can be done via taking positions in heating oil futures so we have prepared a small example of this to understand how exactly this is done so the main idea behind cross hedging is based on the concept of correlation so we know that correlat
