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

Gain = (2.75 − 2.55)10,000 = 2,000

A Farmer Sells Futures Contracts at a Price of $2