At the end of six months for a wheat farmer who sold previously a 6 month wheat futures contract, he may: Question 5Select one:a.can sell the wheat via the spot grain market and at the same time buy a futures contract identical to the contract originally takenb.can sell the wheat via the spot grain market and at the same time sell a futures contract identical to the contract originally taken outc.will make a profit if the price of wheat has gone up on the day the farmer closes out his contractd.deliver the wheat as per the contract and pay out the original agreed-upon price
Question
At the end of six months for a wheat farmer who sold previously a 6 month wheat futures contract, he may: Question 5Select one:a.can sell the wheat via the spot grain market and at the same time buy a futures contract identical to the contract originally takenb.can sell the wheat via the spot grain market and at the same time sell a futures contract identical to the contract originally taken outc.will make a profit if the price of wheat has gone up on the day the farmer closes out his contractd.deliver the wheat as per the contract and pay out the original agreed-upon price
Solution 1
The wheat farmer has several options at the end of the six-month period for which he previously sold a wheat futures contract:
a. The farmer can sell the wheat via the spot grain market and simultaneously buy a futures contract identical to the contract originally taken. This would allow the farmer to potentially profit from any increase in the price of wheat, while also hedging against future price decreases.
b. The farmer can sell the wheat via the spot grain market and simultaneously sell a futures contract identical to the contract originally taken out. This would allow the farmer to potentially profit from any decrease in the price of wheat, while also hedging against future price increases.
c. The farmer will make a profit if the price of wheat has gone up on the day the farmer closes out his contract. This is because the farmer would be selling the wheat for more than the price agreed upon in the futures contract.
d. The farmer can deliver the wheat as per the contract and pay out the original agreed-upon price. This would fulfill the terms of the futures contract, regardless of the current market price of wheat.
Solution 2
The wheat farmer has several options at the end of the six-month period for which he previously sold a wheat futures contract:
a. The farmer can sell the wheat via the spot grain market and simultaneously buy a futures contract identical to the contract originally taken. This would allow the farmer to potentially profit from any increase in the price of wheat, while also hedging against future price decreases.
b. The farmer can sell the wheat via the spot grain market and at the same time sell a futures contract identical to the contract originally taken out. This would allow the farmer to potentially profit from any decrease in the price of wheat, while also hedging against future price increases.
c. The farmer will make a profit if the price of wheat has gone up on the day the farmer closes out his contract. This is because the farmer would be selling the wheat for more than the price agreed upon in the futures contract.
d. The farmer can deliver the wheat as per the contract and pay out the original agreed-upon price. This would fulfill the terms of the futures contract, regardless of the current market price of wheat.
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