The Country Farm and the Cereal Maker met today and agreed to exchange wheat six months from now at a price which they negotiated today.This agreement was made between the two firms and did not pass through an organized exchange.Which one of the following best describes this transaction?
A) futures contract
B) spot market
C) cash market
D) forward contract
E) CME transaction

Question

Quizplus · Accepted Answer

This transaction is a forward contract, as it involves an agreement to exchange a commodity (wheat) at a future date, at a price negotiated today, outside an organized exchange. A futures contract would involve trading on an organized exchange, a spot market would involve immediate delivery and payment, a cash market is a type of spot market, and CME transactions refer to trades made on the Chicago Mercantile Exchange, which may or may not be relevant to this scenario.

The Country Farm and the Cereal Maker Met Today and Agreed