A Hedger Buys a Futures Contract That Obligates the Owner

question 47

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:

Depression

A harsh and long-lasting decline in economic operations, featuring a marked decrease in the GDP, rising unemployment figures, and continued decrease in prices.

Economy

The organized system of human activity involved in the production, consumption, exchange, and distribution of goods and services.

Point H

Typically used in graphical economic analysis to represent a specific point on a curve or graph, illustrating a particular economic condition or outcome.

Underemployed

A term describing individuals who are working in a capacity that is below their skills level, working part-time when they desire full-time employment, or are overqualified for their current position.