A maker of salsa has contracted to buy 100,000 bushels of tomatoes for $4.50 a bushel at the end of August.On the delivery date, the spot price of tomatoes is $4.70 per bushel.Which of the following is true?

Question

Quizplus · Accepted Answer

The seller of the contract profits because they sell the tomatoes at $4.50 per bushel when the market price is $4.70, missing out on the higher price, thus making a $20,000 profit due to the contract terms. The buyer faces a $20,000 loss because they could have bought the tomatoes at the lower spot price of $4.70 per bushel instead of the contracted $4.50, leading to extra expense.

A Maker of Salsa Has Contracted to Buy 100,000 Bushels