Which position should the farmer take in the futures, Financial Management

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Which position should the farmer take in the futures

A Wheat Farmer plans on selling 10,000 bushels of wheat in three months. The wheat futures contract price that expires in 3 months is 400 cents per bushel. The Farmer enters the contract. In three months the spot price is 370 cents per bushel.

1. For the farmer to be hedged, which position should the farmer take in the futures contract?

a. Buy the three-month wheat future

b. Sell the three-month wheat future

c. Buy and sell the three-month wheat future

2. What is the gain/loss from only the futures contract?

a. Gain 30 cents per bushel

b. Lose 30 cents per bushel

c. Gain 370 cents per bushel

3. What is the farmers “Effective purchase price of wheat” once the gains/losses from the future contract are realized?

a. 400 cents per bushel

b. 370 cents per bushel

c. 430 cents per bushel

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