Futures contracts can be used to mitigate price risk

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Reference no: EM131919579

1. A farmer who grows soy beans can hedge against the risk that bad weather will damage her crop by

buying soy bean futures for delivery near the time of harvest.

selling soy bean futures for delivery near the time of harvest.

buying contracts in alternative crops for delivery near the time of harvest.

buying contracts in unrelated commodities for delivery near the time of harvest.

2. Suppose the initial margin on heating oil futures is $8,400, the maintenance margin is $7,200 per contract, and you establish a long position of 10 contracts today. Each contract represents 42,000 gallons. What is the maximum price decline (in dollars per gallon) on each contract that you can sustain without getting a margin call?

$120

$.0286

$.20

$.1714

None of the above

3. The maximum loss on a futures contract is the price paid for the contract. True False

4. Futures contracts can be used to mitigate price risk. True False

Reference no: EM131919579

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