If a firm expects to buy a commodity in the future, it may hedge against a price increase by taking a short position in the futures contract.

Question

Quizplus · Accepted Answer

To hedge against a price increase for a commodity it expects to buy in the future, a firm would take a long position in the futures contract, not a short position. A long position benefits from rising prices, which would offset the cost of buying the commodity at a higher price.

If a Firm Expects to Buy a Commodity in the Future