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

question 30

Multiple Choice

The T-Shirt Factory purchased seven futures contracts on cotton at a quoted price of 63.70 as a hedge against its inventory needs. At the time it actually needed the cotton, the spot price was 64.50. 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)$40
• B)$400
• C)$2,600
• D)$2,400
• E)$2,800

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