Final Flashcards
A flour miller concerned about an increase in the price of wheat could hedge by:
a. Taking a long futures position
b. Taking a short futures position
c. Buying a put option
d. All the above
a. Taking a long futures position
In hedging, a -$1.00 basis would occur if:
a. The cash price exceeds the futures price by $1.00
b. The cash price equals the futures price
c. The cash price is below the futures price by $1.00
d. The futures price and options strike price are the same
c. The cash price is below the futures price by $1.00
The market price paid for an option is best defined as:
a. The strike price of the option
b. The option premium
c. The difference between the futures price and option price
d. The time value of the option
b. The option premium
An owner of a $6.00 CALL option on September wheat could:
a. Let the option expire if futures prices go below $6.00
b. Sell the option at its current premium
c. Exercise the option, taking a long futures position on Sep wheat at $6.00
d. Any of the above
d. Any of the above
A cow-calf operator worried about feeder cattle prices going down could reduce price risk by:
a. Selling both a PUT option and a CALL option
b. Taking a short futures hedge position
c. Buying a PUT option
d. Both b and c
d. Both b and c
T/F
Basis is the difference between cash and futures prices and can be either positive or negative.
True
T F
A farmer buying an option pays a fixed cost similar to an insurance policy premium.
T
T F
A hedger locks in a price with the final outcome of that hedge determined by the final basis.
T
T F
In option markets, only one strike price is available for each month a commodity is traded.
F
T F
An option buyer of a $6.00 wheat CALL would make money on the CALL if futures go below $6.00 per bushel.
F
Comparative advantage is generally defined as the ability of one country to carry out a particular economic activity
more efficiently than another country due to its resource endowments.
a. True
b. False
a. True
For U.S. wheat and cattle producers, a weakening U.S. dollar will likely decrease demand from global buyers.
a. True
b. False
b. False
Proven long-term benefits of international trade for agriculture include all of the following except:
a. Opportunity for market expansion and increased demand
b. Increased efficiency and output through global competition
c. Improving international relations by imposing an embargo
d. Higher quality and variety of agricultural products at a lower price
c. Improving international relations by imposing an embargo
In terms of balance of trade, the U.S. has historically maintained a trade surplus in agricultural products.
a. True
b. False
a. True
Mr. Whittig from FGI explained that Canada has secured a larger share of the Chinese market for forage seeds, due
primarily to which of the following factors?
a. A weaker Canadian Dollar
b. Trade tariffs on U.S. agricultural products
c. A weaker U.S. Dollar
d. Both a & b
d. Both a & b