A Shortage of Wheat

question 68

Multiple Choice

A shortage of wheat:

• A) is impossible if people are hungry.
• B) is impossible if the price of wheat is higher than the market equilibrium.
• C) will result when the quantity supplied exceeds the quantity demanded at the current price.
• D) is unlikely to cause any change in the price of wheat.

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Definitions:

Forward Contract

A bespoke arrangement between two parties for acquiring or disposing of an asset at a designated price on an upcoming date.

Hedge

An investment made to reduce the risk of adverse price movements in an asset.

Speculative Forward Contract

A financial derivative used to speculate on the future price of an asset, involving an agreement to buy or sell the asset at a future date for a price determined today.

Fair Value Hedge

A risk management technique that uses financial instruments to mitigate the risk associated with changes in the fair value of an asset or liability.