Cereal Delites Uses Corn as the Primary Ingredient in Their

question 109

Multiple Choice

Cereal Delites uses corn as the primary ingredient in their cereal. As a result, the firm has a down sloping risk profile which shows that it will suffer a financial loss if the price of corn rises. To offset this risk, the firm should _____ a forward contract on corn with a payoff profile that is _____.

• A) buy; down sloping
• B) buy; up sloping
• C) buy; horizontal
• D) sell; horizontal
• E) sell; up sloping

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Definitions:

Budget Deficit

The financial situation where an entity's expenses exceed its revenues over a specified period, leading to borrowing or debt.

Budget Surplus

An excess of tax revenue over government spending

Loanable Funds

The resources available for borrowing in the financial markets, comprising savings and any other available funds.

National Saving

The total amount of savings generated within a country, including both private savings by individuals and businesses, and public savings from government budgets.