A Farmer Hedged His Risk by Buying Put Options on Wheat

question 26

Multiple Choice

A farmer hedged his risk by buying put options on wheat with an exercise price of $6.70 at a price of $0.14 per bushel.If the price of wheat at the expiration of the contract is $6.70,what is the net revenue from each bushel of wheat?

• A) $6.56
• B) $6.63
• C) $6.70
• D) $6.84

Understand the concept of bank reserves and the difference between required and excess reserves.

Calculate required reserves for a bank based on its demand and time deposits.

Analyze the composition of bank deposits and how they impact reserve requirements.

Apply knowledge of banking regulations related to reserve requirements to solve problems.

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Definitions:

Marginal Rate

The additional cost or benefit associated with a small unit change in a variable or activity.

Indifference Curve

A graph representing combinations of two goods that provide the consumer with the same level of satisfaction, illustrating preferences.

Constant

A value that does not change in mathematical expressions or economic models, acting as a fixed point of reference.

Diminishing

A principle indicating that as more of a good or service is consumed, the marginal benefit to the consumer decreases.