The Purchase of a Futures Contract to Offset Potential Losses

question 63

Multiple Choice

The purchase of a futures contract to offset potential losses from rising prices is a(n) ________ hedge.

• A) long
• B) open
• C) market
• D) short
• E) speculative

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Definitions:

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, leading to a stable market condition.

Equilibrium Quantity

The quantity of goods or services supplied is equal to the quantity demanded at the market equilibrium price.

Demand Increases

A situation wherein there is a rise in the quantity of a product or service sought after by consumers at a given price level.

Equilibrium Price

The price level at which the amount of products available for sale matches the amount consumers want to buy.