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

Santiago should sell futures contracts to hedge against price risk. He needs 4 contracts (200,000 pounds / 50,000 pounds per contract). The total contract value is 200,000 pounds * $0.6054 = $121,080.

Santiago Grows Cotton, Which He Sells on the Market