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.Spot price and futures price are currently $100 and $90.The one year futures price of the commodity is $90.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:

Pituitary Gland

A small endocrine gland located at the base of the brain that produces hormones which regulate growth, metabolism, and reproduction.

Adrenal Glands

Small glands located on top of each kidney that produce a variety of hormones including adrenaline and cortisol, involved in stress responses.

Glial Cells

Supportive cells in the nervous system that provide support and nutrition, maintain homeostasis, form myelin, and participate in signal transmission in the nervous system.

Somatic Nervous System

The part of the peripheral nervous system responsible for carrying sensory and motor information to and from the central nervous system.