You are a grain exporter and need to acquire 160,000 bushels of soybeans for export next month. Futures contracts are for 5,000 bushels and are quoted at 7.50 per bushel. If you want to hedge your cost risk, what should you do?

Question

Quizplus · Accepted Answer

To hedge against the cost risk of acquiring soybeans, you would buy futures contracts to lock in the price. The calculation is 160,000 bushels / 5,000 bushels per contract = 32 contracts. The contract value is calculated as 160,000 bushels * $7.50 per bushel = $1,200,000.

You Are a Grain Exporter and Need to Acquire 160,000