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:

Row-echelon Form

A form of a matrix where all nonzero rows are above any rows of all zeroes, and each leading entry of a row is to the right of the leading entry of the previous row.

Matrix

A rectangular array of numbers, symbols, or expressions, arranged in rows and columns, used in linear algebra.

Third Number

In sequences, the third number is the term that comes immediately after the second and is preceded by the fourth number, if available.

Positive Numbers

Positive numbers are numbers greater than zero, found on the right side of the real number line, and are used to represent quantities that have magnitude only.