How Does a Soybean Farmer Lock in a Price of $5.40

question 86

Multiple Choice

How does a soybean farmer lock in a price of $5.40 per bushel when the cash price at harvest is only $4.90?

• A) Profit in futures market to offset loss in cash market by selling futures contract at $5.40/bushel.
• B) Break even in both markets by buying a futures contract at $5.40/bushel.
• C) Profit in cash market to offset loss in futures market by buying futures contract at $5.40/bushel.
• D) Break even in both markets by selling a futures contract at $5.40/bushel.

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Definitions:

Depreciation

The allocation of the cost of a tangible asset over its useful life, representing the decrease in value due to wear and tear, age, or obsolescence.

Trade-In Allowance

Trade-In Allowance is the credit a dealer offers to the consumer towards the purchase of a new item by trading in an older model or item.

Depreciation

A technique for distributing the expense of a physical asset throughout its lifespan.

Commercial Substance

A term used in accounting to indicate that a transaction significantly changes the economic position of the parties involved.