A Firm Can Hedge the Risk of Upward Movement in Raw

question 75

Multiple Choice

A firm can hedge the risk of upward movement in raw material prices by taking one of the following positions.

• A)Buying a call option.
• B)Selling a call option.
• C)Buying a put option.
• D)Selling a futures contract.

---

Definitions:

Demand for Good

The quantity of a particular good or service that consumers are willing and able to purchase at various prices during a specified time period.

Square Feet

A unit of area measurement equivalent to the area of a square with sides of one foot in length.

Quasilinear Preferences

Preferences where utility is linear in one argument, usually money, allowing for easy analysis of changes in wealth while other goods are evaluated non-linearly.

Homothetic

Pertaining to a class of production functions or utility functions where equal proportionate changes in inputs result in equal proportionate changes in output.