Multiple Choice

Please circle the alternative that best answers the question or completes the sentence.

1. Long hedge (buying a futures contract) is used to protect against ____________.

a. a declining price

b. a rising price

c. both (a) and (b)

d. None of the above

2. On March 13, Mr. Smith planted corn and sold December corn at $2.15/bushel. On Nov. 15 (after harvest) he offset the short position by buying back December corn at $2.03/bushel and sold his corn in the local cash market for $1.91. What is the net hedged selling price per bushel of corn?

a. $2.04/bushel

b. $2.03/bushel

c. $2.15/bushel

d. $1.91/bushel

e. None of the above

3. On October 1, a food processor bought December corn at $2.10/bushel. On November 15, the processor offset the long position by selling December corn at $2.17/bushel and bought corn from local cash market for $2.05/bushel. What is the net hedged buying price for corn?

a. $1.98/bushel

b. 2.12/bushel

c. $2.05/bushel

d. $2.17/bushel

e. None of the above

4. On January 1, Mr. Brown bought feeder cattle at $67cwt and placed on feed. Cash price for live cattle was $61/cwt. Mr. Brown hedged his cash position by selling June live cattle contract at $66/cwt. On May 15, Mr. Brown sold fed cattle in the cash market for $56.5/cwt and offset his short position by buying June live cattle contract at $61/cwt. What is the net hedged selling price?

a. $62.0/cwt

b. $62.5/cwt

c. $63.0/cwt

d. $61.5/cwt

e. None of the above

5. You received the following information from a reliable source.

1. Soybean production in Argentina, the third largest exporter, will be higher than the current estimate.

2. European Union soybean imports will be less than the current estimate because of weak demand for pork.

If you are a grain trader, how you will react to this news?

a. You will buy soybean futures.

b. You will sell soybean futures.

c. You will do nothing.

d. All of the above.

e. None of the above.