Accurately describe the impact of this futures contract

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Reference no: EM131208707

On Febraury 1, 2015, Hils Company had $ 10,000 pounds of inventory costin g$ 1.50 per pound; the market value per pound was $ 1.95 on this date. Hills enterd into a futures contract to sell the 10,000 pounds of inventory during My 2015 at $ 2.25 per pound. Which of the following statement does NOT accurately describe the impact of this futures contract?

a- Hills has foregone the benefits of additional profits (the upside potential) if the price per pound exceeds $ 2.25 during the month of May

b- Hills has eliminated the risk of reduced profits (the downside potential) if the price per pound is less than $ 2.25 during the month of May.

c- Hills gross profit in May will be $ 3,000 regardless of the actual price per pound in May

d- the value of the futures contract decreases as the market price per pound of inventory increases

Reference no: EM131208707

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