You Expect to Deliver 40,000 Bushels of Wheat to the Market

question 19

Multiple Choice

You expect to deliver 40,000 bushels of wheat to the market in July. Today, you hedge your position by selling futures contracts on half of your expected delivery at the final price of the day. Assume that the market price turns out to be 582.0 when you actually deliver the wheat. How much more or less would you have earned if you had not bought the futures contracts?
Wheat - 5,000 bu.:
u.S. cents per bu.

• A)$8,000 less
• B)$4,000 less
• C)neither more nor less
• D)$4,000 more
• E)$8,000 more

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Definitions:

Intuitive Judgments

Decisions made quickly and without conscious reasoning, relying on gut feelings and automatic cognitive processes.

Quick

The ability to do something or the act of doing something with speed or within a short time frame.

Representativeness Heuristic

A cognitive shortcut that involves judging the probability of an event by comparing it to an existing prototype that already exists in our minds.

Prototype

An original model or first form of something from which later versions are patterned; in cognitive science, it refers to a typical example of a category.