Better off entering into one-year forward contract

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Reference no: EM132050874

1. John owns a large grocery store chain in Central Illinois, and he likes to sell pumpkins during October, so he contracts with farmer Jill to buy pumpkins from her. She will provide a total of 1000 pumpkins, for which John will pay $1000, with delivery and payment on October 1. What kind of contract is this?

A. a futures contract

B. an options contract

C. a forward contract

D. a swap contract

2. Wildcat oil drillers in Texas face the decision of whether to sell their oil at spot or agree to sell to a company like Kokolene at a set price. Suppose the partners in Dark Sun Energy, which has wells in the oil patch, believe that a regional war between Iran and other countries will happen in the next six months, but not many others think this is at all likely. In such a situation, Dark Sun Energy would be better off entering into a one-year forward contract with Kokolene.

A. True

B. False

Reference no: EM132050874

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