A Firm Enters into a One-Year Forward Contract to Buy

question 4

Multiple Choice

A firm enters into a one-year forward contract to buy refined oil.To hedge itself,the firm simultaneously sells one-year futures contracts on crude oil.In which of the following scenarios might the firm come under cash flows pressure related to these contracts?

• A)Oil prices plummet a day before the maturity of the contracts
• B)Oil prices skyrocket a day before the maturity of the contracts
• C)Oil prices plummet a day after the firm enters the contracts
• D)Oil prices skyrocket a day after the firm enters the contracts

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Definitions:

Rival European Empires

The competitive dynamic between European powers such as Great Britain, France, Spain, and others as they sought to expand their territories and influence through colonization and conquest from the 15th to the 20th centuries.

Indians

Refers to the people native to India or the indigenous peoples of the Americas, depending on the context.

Walking Purchase

A controversial 1737 agreement where Pennsylvania colonists claimed to have purchased land from the Lenape Indians based on the distance covered in a day and a half walk, significantly expanding colonial territory.