One electronics manufacturer manages risk by making agreements with factories well in advance to guarantee productive capacity at an agreed price. If their product is popular, then they can use that productive capacity during an otherwise busy season at a lower cost. Such an agreement could best be described as:

Question

Quizplus · Accepted Answer

The described agreement is a form of a futures contract, in which the manufacturer secures productive capacity and price ahead of time to mitigate risk and potential increases in costs.

One Electronics Manufacturer Manages Risk by Making Agreements with Factories