The T-Shirt Factory Purchased 12 Futures Contracts on Cotton at a Quoted

question 33

Multiple Choice

The T-Shirt Factory purchased 12 futures contracts on cotton at a quoted price of 55.50 as a hedge against its inventory needs. At the time it actually needed the cotton, the spot price was 56.10. Cotton futures are based on 50,000 pounds and quoted in cents per pound. How much did the Shirt Factory save by hedging cotton?

• A)$90
• B)$560
• C)$1,280
• D)$2,400
• E)$3,600

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Definitions:

Credit Transaction

A financial agreement where a buyer receives goods or services with the promise to pay the seller at a future date, typically involving interest or finance charges.

China

A sovereign nation located in East Asia, known for its rich history, cultural heritage, and being the world's most populous country.

Puffery

Exaggerated or boastful statements made by sellers about a product or service that are considered opinion rather than fact.

Advertising

The activity or profession of producing advertisements for commercial products or services to attract potential customers or clients.