Cole's Jewelers purchased a futures contract on 200 ounces of gold to be exchanged 3 months from now. As the contract holder, Cole's Jewelers:
A)has the right, but not the obligation, to purchase 200 ounces of gold 3 months from now.
B)has the obligation to purchase 200 ounces of gold at the market price 3 months from now.
C)has an obligation to buy 200 ounces of gold but only if the price of gold increases within the next 3 months.
D)is expecting the price of gold to decrease and thus is locking in a selling price.
E)will profit if the price of gold is higher three months from now.

Question

Quizplus · Accepted Answer

Cole's Jewelers will profit if the price of gold is higher than the contract price at the time of exchange, as they have locked in a lower purchase price through the futures contract.

Cole's Jewelers Purchased a Futures Contract on 200 Ounces of Gold