Santiago Grows Cotton, Which He Sells on the Market

question 186

Multiple Choice

Santiago grows cotton, which he sells on the market. He estimates his crop this year at 200,000 pounds. Futures contracts on cotton are priced at 60.54 cents per pound with a contract size of 50,000 pounds. Santiago wants to hedge against price risk. Santiago should _____ 4 contracts at a total contract value of:

• A) Buy; $12,108.
• B) Buy; $121,080.
• C) Buy; $30,270.
• D) Sell; $30,270.
• E) Sell; $121,080.

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Definitions:

Positive Relationships

Interactions characterized by trust, respect, and mutual appreciation, promoting a healthy and supportive environment.

Dominant Strategy

A strategy in a game theory scenario that is best for a player, no matter what strategies other players use.

Annual Profits

The net income a company generates in one fiscal year, derived from its revenue minus expenses, taxes, and costs.

Payoffs

The outcomes or returns from a particular action or decision, often used in the context of game theory and economic models.