Monique grows and exports cocoa. Her crop was partially ruined in a storm, so she needs to purchase 20 tons of cocoa in three months to meet prior contractual obligations. Monique wants to hedge against price changes. Each futures contract is for 10 metric tons. The current quote for the contract is 1,447 per ton. Monique should _____ 2 futures contracts with a total contract value of:
A) Buy; $28,940.
B) Buy; $289,400.
C) Buy; $14,470.
D) Sell; $28,940.
E) Sell; $289,400.

Question

Quizplus · Accepted Answer

Monique needs to hedge against the risk of rising prices for cocoa, so she should buy futures contracts to lock in the current price. Since each contract is for 10 metric tons and she needs 20 tons, she should buy 2 contracts. The total contract value is calculated as 20 tons * $1,447 per ton = $28,940.

Monique Grows and Exports Cocoa