Hedging Through Futures Contracts

question 6

Multiple Choice

Hedging through futures contracts

• A)Increases risk of loss if prices fall
• B)Eliminates profit maximization potential
• C)Is considered to be speculative in nature
• D)All of the above

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Definitions:

Lumber

Wood that has been processed into beams and planks, a stage in the process of wood production.

Period Costs

Expenses that are not directly tied to the production of goods, such as selling, general, and administrative costs, and are expensed in the period they are incurred.

Factory Rent

The cost incurred by a business for leasing a manufacturing facility or space where production activities are carried out.

Factory Overhead

All the supplementary costs tied to manufacturing, aside from the expenses of direct materials and direct labor.