You are the buyer for a cereal company. You think you will need 120,000 bushels of corn next month. The futures contracts on corn are based on 5,000 bushels and are currently quoted at 264.3 cents per bushel for delivery next month. If you want to hedge your cost risk, you should _____ contracts at a current value of _____ per contract.

Question

Quizplus · Accepted Answer

To hedge the cost risk for 120,000 bushels, you need to buy 24 contracts (120,000 / 5,000). Each contract is valued at 5,000 bushels * 264.3 cents = $13,215.

You Are the Buyer for a Cereal Company