1. A hedger has taken a long position in the wheat futures market.
a. What does a long position in the above example mean?
b. What is the risk that is hedged in this transaction?
c. What are the risks and rewards of buying versus writing options?
d. Does the existence of derivatives markets enhance an economy’s ability to grow, or not and why?
e. What kind of an option should you purchase if you anticipate selling $1 million of treasury bonds in one year’s time and wish to avoid a capital loss?
f. You are completely convinced that the price of copper is going to rise significantly over the next year and want to take as large a position as you can in the market but have limited funds. How could you use the futures market to leverage your position?