A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn.
-Ignoring the transaction costs,how much did the farmer improve his cash flow by hedging sales with the futures contracts?
A) $0
B) $2,000
C) $31,875
D) $33,875

Question

Quizplus · Accepted Answer

The farmer sold futures contracts at $2.75 and the spot price at expiration was $2.55, resulting in a gain of $0.20 per bushel on 10,000 bushels, improving cash flow by $2,000.

A Farmer Sells Futures Contracts at a Price of $2