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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