A Milling Company Buys a Futures Contract That Requires It

question 64

Multiple Choice

A milling company buys a futures contract that requires it to take delivery of 5,000 bushels of wheat at a price of $6.80 per bushel.At expiration the spot price of wheat is $6.68 per bushel.The miller:

• A) has saved $0.12 per bushel through hedging.
• B) has locked in an effective price of $6.80 per bushel.
• C) can choose not to take delivery since the price declined.
• D) has locked in an effective price of $6.68 per bushel.

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Definitions:

Moving Average

A technique in statistics that involves calculating averages from various subsets within the whole data set for analysis purposes.

Responsiveness

Refers to the ability of a business or system to quickly react to changes or demands in the environment.

Greater Smoothing

A technique used in data analysis and time series forecasting to reduce volatility or noise in data points.

Promotional Efforts

Activities and campaigns designed to increase awareness or sales of a product or service, typically involving advertising and marketing tactics.