A hog farmer decides to sell hog futures. This is an example of ________ to limit risk.

Question

Quizplus · Accepted Answer

Short hedging is the correct answer because when a hog farmer sells hog futures, they are entering into a contract to sell their hogs at a future date at a predetermined price. This strategy is used to protect against the risk of falling prices. By locking in a price for their hogs, the farmer is hedging against the possibility that prices will decrease by the time they are ready to sell their actual hogs.

A Hog Farmer Decides to Sell Hog Futures