A Futures Contract Hedges Against the Risks Associated with the Volatility

question 66

True/False

A futures contract hedges against the risks associated with the volatility of spot price.

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Definitions:

Break-Even

Break-even point is the level of production or sales at which total revenues equal total expenses, resulting in no net loss or gain.

Fixed Costs

Fixed costs are expenses that do not change with the level of production or sales, such as rent and salaries.

Variable Costs

Costs that vary in total in direct proportion to changes in the level of activity or volume of output produced.

Constraint

A limitation or restriction that affects an organization's ability to achieve its objectives, such as limited resources or time.