A Hedger Buys a Futures Contract That Obligates the Owner

question 72

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 $2.80 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:

Retinal Disparity

The slight difference in the visual images that each eye perceives because of the different angles in which each eye views the world.

Basilar Membrane

A critical structure in the inner ear, part of the cochlea, that plays a key role in sound perception by vibrating in response to different frequencies.

Audition

The process of hearing or the ability to hear.

Vestibular Sense

The sensory system that contributes to balance and spatial orientation by detecting changes in motion and the position of the head.