A Hedger Buys a Futures Contract That Obligates the Owner

question 44

Multiple Choice

A hedger buys a futures contract that obligates the owner to take delivery of 5,000 bushels of wheat at a price of $3.30 per bushel.At expiration the spot price of wheat is $3.80 per bushel.The hedger has:

• A)saved 50¢ per bushel through hedging.
• B)gained peace of mind at a price of 50¢ per bushel.
• C)the opportunity to avoid taking delivery, since price declined.
• D)locked in an effective price of $3.05 per bushel.

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Definitions:

Statement of Cash Flows

A financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given period.

Noncurrent Asset

Long-term assets that are not expected to be converted into cash or used up within one year or the operating cycle, such as buildings or equipment.

Noncash Activities

Transactions that do not involve the direct inflow or outflow of cash, affecting non-cash balance sheet accounts.

Investing Activities Section

Part of the cash flow statement that shows the cash spent on and received from investments in assets, loans, and other business activities.