Ag test
Futures markets
can be used by farmers to reduce price risk over time
The cash price today of wheat is $3.20/bu and the basis on a June contract is $-0.25/bu. What is the price today of a June futures contract?
$3.45
The prices for March, July, and September corn futures contract are listed in the newspaper. The prices are 1. $2.78 2. $2.65 3. $2.85 Arrange these three prices in chronological order as they would appear in the paper.
2-1-3
A hedger in futures markets
Correct: none of the above is a risk taker b. is betting that the price of the commodity will go up c. is betting that the price of the commodity will go down d. is one who never intends to take physical possession of the commodity e. none of the above
A corn farmer who buys a corn futures contract in May is
a speculator
In futures markets, the buyer of a contract agrees to
accept delivery according to the terms of the contract
Basis is predictable because of
arbitrage
Simultaneously buying and selling a product in two distinct markets is called
arbitrage
The practice of buying something at a low price in one market and selling it in another market at a higher price is called
arbitrage
A person who buys a June wheat contract today and sells a September wheat contract today is a
arbitrager
Futures contracts
are created by the exchanges on which they are bought and sold
The difference between a cash price and a futures price is
basis
Hedging replaces price risk with
basis risk
Most "open" positions on futures markets are "closed" by
buying or selling contracts
Most futures contracts are
closed by buying/selling an offsetting contract
What is traded on futures markets is
contracts
A hedger in futures markets
creates opposite positions in the futures and commodity markets
Which of the following is not standardized in a futures contract?
delivery price
An individual who seeks to avoid price risk by taking opposite positions in the cash and futures markets is a
hedger
In futures markets a speculator
hopes to sell high and buy low
As futures contracts approach the delivery date
most open positions are closed out
In March Sam sells a December corn futures contract to open a position. Sam can close this position by
none of the above
The use of futures markets to establish today the price that will be received in the future is called
none of the above
What is traded at the Chicago Board of Trade?
none of the above
There are two traders of futures contracts. The first sells and then buys a contract. The second buys and then sells a contract. The first ________ and then ________ a position while the second ________ and then ________ a position.
opened; closed; opened; closed
Which of the following best describes the basis on a futures contract?
predictable
A futures contract does NOT specify which of the following?
price
Futures contracts are standardized with regards to everything EXCEPT
price
Futures contracts are
promises
Farmer Dusty plans to harvest a corn crop in late fall. In order to hedge his crop he should
sell a December futures contract in March
A wheat farmer who wants to hedge the crop he plans to harvest next June should do what?
sell a June contract today
A Florida grove owner who plans to harvest fruit in March should do what today to hedge his position?
sell a March FCOJ futures contract
In October a grain elevator operator buys some corn that he plans to sell in March. In order to hedge this grain, he would
sell a March contract in October
A hedger will try to minimize the price risk associated with holding a physical commodity by
selling futures contracts when the commodity is acquired
Regardless of what happens to cash prices,
the basis on futures contracts approaches zero as the contract nears maturity
The basis on a futures contract is the difference between
the cash price and the current price of a futures contract