A Hedger Buys a Futures Contract That Obligates the Owner

question 44

Multiple Choice

A hedger buys a futures contract that obligates the owner to take delivery of 5,000 bushels of wheat at a price of $3.30 per bushel.At expiration the spot price of wheat is $3.80 per bushel.The hedger has:

• A)saved 50¢ per bushel through hedging.
• B)gained peace of mind at a price of 50¢ per bushel.
• C)the opportunity to avoid taking delivery, since price declined.
• D)locked in an effective price of $3.05 per bushel.

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Definitions:

Equifinality

The principle that in open systems, the same end state can be reached from different initial conditions and by a variety of paths.

Same End

Achieving the same outcome or goal despite possibly using different means.

Output

The final product, result, or amount of something produced by a process, system, or activity.

Communication Flow

The movement and direction of information within an organization or between individuals, including how effectively information is shared.