You Grow Wheat and Figure That You Will Have 60,000

question 185

Multiple Choice

You grow wheat and figure that you will have 60,000 bushels to sell in the next month. Futures contracts are for 5,000 bushels and are quoted at 7.50 per bushel. If you want to hedge your price risk, what should you do?

• A) Sell 12 contracts at a current contract value of $90.
• B) Buy 12 contracts at a current contract value of $450,000.
• C) Sell 12 contracts at a current contract value of $240,000.
• D) Sell 12 contracts at a current contract value of $450,000.
• E) Buy 12 contracts at a current contract value of $240,000.

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Definitions:

Tsunami

A series of large ocean waves generated by significant disturbances such as underwater earthquakes, volcanic eruptions, or landslides.

Seafloor

The bottom layer of the ocean, consisting of sediment, rock, and organic material, shaped by geological and biological processes.

Landslides

Gravitational forces causing the downward shift of earth materials, rocks, or debris along a slope.

Volcanic Eruptions

The release of magma, ash, and gases from a volcano, a geological process that can significantly alter the surrounding landscape.