How does a soybean farmer lock in a price of $14.40 per bushel when the cash price at harvest is only $14?
A) Profit in futures market to offset loss in cash market by selling futures contracts at $14.40/bushel.
B) Break even in both markets by buying a futures contract at $14.40/bushel.
C) Profit in cash market to offset loss in futures market by buying futures contract at $14.40/bushel.
D)Break even in both markets by selling a futures contract at $14.40/bushel.

Question

Quizplus · Accepted Answer

The soybean farmer can profit in the futures market to offset the loss in the cash market by selling futures contracts at the target price of $14.40 per bushel. This means that the farmer will have effectively locked in a selling price of $14.40 per bushel, regardless of whether the market price at harvest is above or below this level.

How Does a Soybean Farmer Lock in a Price of $14.40