Luke Owns a Large Farming Operation Which Encompasses Over 5,000

question 88

Multiple Choice

Luke owns a large farming operation which encompasses over 5,000 acres of corn.The crop this year is abundant and will be ready for harvesting next month.Luke likes the market prices today but expects the prices to decline over the next month as the supply of corn increases.Which one of the following positions should Luke take to hedge his corn crop?

• A) sell in the spot market today
• B) buy in the spot market today
• C) take a long futures position
• D) take a short futures position
• E) sell in the spot today and take a long position in the futures market

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Definitions:

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A figure of speech in which a word or phrase is applied to an object or action to which it is not literally applicable, used to make a comparison in order to illustrate a point.