You,a farmer,anticipate taking 80,000 bushels of soybeans to the market in three months.The current cash price for soybeans is $5.85.The size of the futures contract is 5,000 bushels per contract and the current three-month futures price is $5.88.If you wanted to hedge one-half of your exposure to a drop in the value of soybeans,how many futures contracts would you buy or sell?

Question

Quizplus · Accepted Answer

To hedge half of the exposure, you need to cover 40,000 bushels (half of 80,000). Since each futures contract is for 5,000 bushels, you would sell 8 contracts (40,000 / 5,000 = 8).

You,a Farmer,anticipate Taking 80,000 Bushels of Soybeans to the Market