How Might a Firm Such as General Mills Use Options

question 45

Multiple Choice

How might a firm such as General Mills use options to control raw material prices for breakfast cereals?

• A) Buy call options on commodities
• B) Sell call options on commodities
• C) Buy put options on commodities
• D)Sell put options on commodities

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Definitions:

Fee Simple Absolute

The highest form of land ownership, which gives the owner the right to possess and use the land for an unlimited period of time, subject only to governmental or private restrictions, and unconditional power to dispose of the property during his lifetime or upon his death.

Possess

To have ownership or control over an object or property.

Tenant In Common

A form of co-ownership where each party owns a specific fraction of property, but there is no division of the property itself. Each tenant's share can be passed on to heirs.

Automatically Transfer

The process by which rights, property, or obligations are transferred from one party to another without the need for manual intervention or additional agreement.