What Must Happen to Prices Over the Course of a Contract

question 1

Multiple Choice

What must happen to prices over the course of a contract for the seller of a futures contract to maximize benefits of the hedge?

• A) Prices must decrease.
• B) Prices must increase.
• C) Prices must remain constant.
• D) The seller will profit on the hedge regardless of the direction of price movements.

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Definitions:

Drive-Reduction Theory

A psychological concept proposing that the motivation of behavior is the reduction of drives, which are primarily biological needs that trigger arousal.

Aroused State

A condition of heightened physiological and psychological activity, with increased heart rate, alertness, and energy, often triggered by excitement or stress.

Unlearned Behavior

Innate actions or reactions not influenced by conditioning or learning; instinctive behavior.

Homeostatic Mechanism

Biological processes that maintain stability and equilibrium within an organism's internal environment.