A hedger buys a futures contract that obligates the owner to take delivery of 5,000 bushels of wheat at a price of $3.30 per bushel.At expiration the spot price of wheat is $2.80 per bushel.The hedger has:
A)Saved 50' per bushel through hedging
B)Gained peace of mind at a price of 50' per bushel
C)The opportunity to avoid taking delivery, since price declined
D)Locked in an effective price of $3.05 per bushel

Question

Quizplus · Accepted Answer

The hedger gained peace of mind by locking in a price of $3.30 per bushel, even though the market price fell to $2.80, effectively paying 50 cents more per bushel than the market price.

A Hedger Buys a Futures Contract That Obligates the Owner