The T-Shirt Factory Purchased 8 Futures Contracts on Cotton at a Quoted

question 29

Multiple Choice

The T-Shirt Factory purchased 8 futures contracts on cotton at a quoted price of 64.50 as a hedge against its inventory needs.At the time it actually needed the cotton,the spot price was 65.10.Cotton futures are based on 50,000 pounds and quoted in cents per pound.How much did the Shirt Factory save by hedging cotton?

• A) $90
• B) $560
• C) $1,280
• D) $2,400
• E) $3,000

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Definitions:

Purchases Equipment

The process of acquiring physical assets like machinery or office supplies that are used in the operations of a business.

Liabilities Increase

Refers to a rise in the obligations or debts that a company owes, which may affect its financial health.

Net Income

The end profit of a company after revenue has been reduced by expenses and taxes.

Revenues Over Expenses

The surplus resulting when total revenues exceed total expenses in a business, indicating profitability.