A Farmer and a Sugar Factory Enter into a Futures

question 5

Multiple Choice

A farmer and a sugar factory enter into a futures contract requiring the delivery of 4,000 tons of sugarcane to the buyer in June at a price of $30 per ton. Suppose the futures contracts for sugarcane increases to $35 per bushel the day after the farmer and the sugar factory enter into their futures contract. If the contract was settled under these conditions, the farmer will have:

• A) lost $5.
• B) lost $20,000.
• C) gained $5.
• D) gained $20,000.

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Definitions:

Variable Budget

A budget that adjusts to changes in the level of activity, providing a more realistic financial forecast than a static budget.