Santiago grows cotton, which he sells on the market. He estimates his crop this year at 200,000 pounds. Futures contracts on cotton are priced at 60.54 cents per pound with a contract size of 50,000 pounds. Santiago wants to hedge against price risk. Santiago should _____ 4 contracts at a total contract value of:

Question

Quizplus · Accepted Answer

To hedge against the risk of cotton prices falling, Santiago should sell futures contracts. The total contract value is calculated as 200,000 pounds * $0.6054/pound = $121,080.

Santiago Grows Cotton, Which He Sells on the Market