Producers Who Hedge Through the Purchase of Put Options Must

question 6

Multiple Choice

Producers who hedge through the purchase of put options must remember that they may be:

• A) reducing their profits compared to not hedging.
• B) obligated to sell their product at a lower than market price.
• C) increasing their overall risk.
• D)facing unlimited price risk.

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Definitions:

Sold

The past tense of sell, indicating that an item or service has been exchanged for money or its equivalent.

Price Fixing

An unlawful agreement between competitors to establish, raise, or maintain prices at a certain level, often aimed at maximizing profits by eliminating competition.

Distributor

An intermediary entity that buys products from manufacturers and sells them to retailers or directly to consumers.

Horizontal Price Fixing

An illegal agreement between competitors to fix, control, or maintain prices at a certain level, often leading to reduced competition.