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

Question

Quizplus · Accepted Answer

The buyer has to buy wheat at the agreed price of $4.50 per bushel instead of the spot price of $4.70, missing out on potential savings, which results in a notional loss of $20,000 (100,000 bushels * ($4.70 - $4.50)). Conversely, the seller benefits from selling at $4.50 instead of the current lower spot price, gaining a notional profit of $20,000. Thus, both A and B are true.

A Maker of Breakfast Cereals Has Contracted to Buy 100,000