A Company Will Buy 1000 Units of a Certain Commodity

question 10

Multiple Choice

A company will buy 1000 units of a certain commodity in one year.It decides to hedge 80% of its exposure using futures contracts.The spot price and the futures price are currently $100 and $90,respectively.If the spot price and the futures price in one year turn out to be $112 and $110,respectively.What is the average price paid for the commodity?

• A)$92
• B)$96
• C)$102
• D)$106

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Definitions:

Air Patterns

The general movement and distribution of air, including wind, that affects weather systems and climate.

Tropics

The region of the Earth surrounding the equator, characterized by a warm climate and receiving direct sunlight throughout the year.

Pressure Air Masses

Large volumes of air defined by their pressure and temperature characteristics, playing a critical role in weather patterns and climatic conditions.

Cold Front

The leading edge of a cooler mass of air, replacing (at ground level) a warmer mass of air.