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:

Unstable Causes

Factors or conditions that contribute to fluctuations or irregularities in a system or situation, leading to unpredictability or instability.

Environmental Conditions

The external factors and surroundings that can influence the life, growth, behavior, and survival of organisms or systems.

Own Behavior

Refers to an individual's actions or conduct that they are personally responsible for or in control of.

Sense of Purpose

The motivation that drives individuals or groups to achieve goals and objectives, providing direction and meaning to actions or projects.