Corn is currently selling for $6.15 a bushel while the 3-month futures price is $6.20.Carlos believes that corn will actually sell for $6.45 a bushel 3 months from now.Which one of the following positions in corn should he take today,given this belief?
A)sell in the spot market
B)sell in the futures market
C)take a long position in the futures market
D)take a short position in the futures market
E)take a short position in the spot market

Question

Quizplus · Accepted Answer

Carlos believes that the price of corn will increase in the future. Therefore, he should take a long position in the futures market to lock in the current price of $6.20 per bushel and benefit from the expected price increase of $6.45 per bushel in the future. Selling in the spot market would not be a good idea as he would miss out on the expected price increase. Taking a short position in either the spot or futures market would also be a bad idea as he expects the price of corn to rise, not fall. Therefore, option C is the best choice for Carlos.

Corn Is Currently Selling for $6