A Cotton Producer Has Purchased Cotton Futures That Involve 50,000

question 49

Multiple Choice

A cotton producer has purchased cotton futures that involve 50,000 pounds of cotton at a price of $0.60 per pound.By contract expiration the producer finds that cotton prices have declined by $0.07 per pound.As a result of the futures contracts, the producer will:

• A)Lose $3,500 per contract in the futures market which offsets gains in the cash market
• B)Gain $3,500 per contract in the futures market which offsets losses in the cash market
• C)Lose $3,500 per contract in the futures market and suffer an opportunity cost in the cash market
• D)Gain $3,500 per contract in the futures market and gain $0.10 per pound in the cash market