A Cotton Producer Has Purchased Cotton Futures That Involve 50,000

question 82

Multiple Choice

A cotton producer has purchased cotton futures that involve 50,000 pounds of cotton at a price of $0.60 per pound.By contract expiration the producer finds that cotton prices have declined by $0.07 per pound.As a result of the futures contracts,the producer will:

• A) lose $3,500 per contract in the futures market which offsets gains in the cash market.
• B) gain $3,500 per contract in the futures market which offsets losses in the cash market.
• C) lose $3,500 per contract in the futures market and suffer an opportunity cost in the cash market.
• D) gain $3,500 per contract in the futures market and gain $0.10 per pound in the cash market.

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Definitions:

Age of Revolution

A period from approximately 1774 to 1849 during which numerous significant revolutions occurred across the globe, including the American, French, and Industrial Revolutions.

French Revolution

A period of far-reaching social and political upheaval in France and its colonies beginning in 1789, which fundamentally changed the course of French history.

Mexican Revolution

A major armed struggle from 1910 to 1920 that transformed Mexican culture and government, leading to the end of the Porfiriato and the establishment of a constitutional republic.

Sugar Act

A British law enacted in 1764 that imposed a tax on sugar and molasses imported into the American colonies, leading to widespread discontent.