Final Exam Flashcards
A grain producer concerned about a decrease in price could hedge by:
a. Taking a long futures position
b. Taking a short futures position
c. Selling an option
d. All the above
b. Taking a short 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
a. The cash price exceeds the futures price by $1.00
An option premium is:
a. The option’s strike price less the price of the underlying futures contract
b. The market price of the option
c. The amount deposited with the broker to open a futures position
d. The change in the futures price represented by the day’s high and low
b. The market price of the option
An owner of a $8.00 PUT option on September wheat could:
a. Let the option expire if futures prices go above $8.00
b. Sell the option at its current premium
c. Exercise the option, taking a short futures position on Sep wheat at $8.00
d. Any of the above
d. Any of the above
A feedlot operator worried about cattle prices going up could reduce price risk by:
a. Selling both a PUT option and a CALL option
b. Taking a long futures position
c. Buying a CALL option
d. Both b and c
d. Both b and c
True or False
Basis can be either positive or negative.
True
True or False
A farmer buying options to protect against price risk places both a floor and a ceiling on the net price received.
False
True or False
A hedger can lock in a guaranteed price because basis never changes.
False
True or False
In options markets only one strike price is available for each month a commodity is traded.
False
True or False
An option buyer of a $6.00 wheat PUT would lose money on the PUT if prices decline to $4.00 per bushel.
False
Assume Country A has a comparative advantage in corn production and Country B has a comparative advantage in oil production. In terms of international trade:
a. Each country should direct resources toward the product for which they have a comparative advantage
b. Country A will be better off by exporting corn to Country B and importing oil from Country B
c. Country B will be better off by exporting oil to Country A and importing corn from Country A
d. All the above
d. All the above
True or False
For U.S. wheat and cattle producers, a strengthening U.S. dollar will likely decrease demand from global buyers.
True
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
What percent of U.S. agricultural production is currently being exported?
a. 10%
b. 20%
c. 30%
d. 40%
b. 20%
True or False
Creative destruction is defined as using import tariffs and quotas to protect a country’s domestic producers.
False
A country’s policy of supporting higher domestic agricultural prices to ensure production is best defined as:
a. Embargo
b. Export Subsidy
c. Import Tariff
d. Import Quota
b. Export Subsidy
If the Japanese Yen weakens relative to the U.S. dollar, which of the following statements is true regarding the impact on trade between Japan and the U.S.?
a. U.S. wheat will now be more expensive to the Japanese consumer
b. Japanese tourists traveling to Hawaii will enjoy a lower cost vacation
c. Televisions produced in Japan will now be less expensive to the U.S. consumer
d. Both a and c would be true
d. Both a and c would be true
True or False
Import tariffs on a good typically raise the cost of that good to consumers in the country imposing the tariff.
True
Countries that export the largest amount off agricultural products to the U.S are:
a. Brazil and Columbia
b. Japan and Canada
c. Canada and Mexico
d. Italy and France
c. Canada and Mexico
True or False
A U.S. trade deficit would occur is the U.S. exports $9 ban to Mexico and imports $8 ban of products from Mexico.
False
A lower-cost shipping alternative that is dependent on U.S. waterway system
Barge
The process of delivering the right product, at the right time, to the right place
Logistics
Highways, railways and facilities serving a transportation system
Infrastructure
Providing lower cost through handling and transporting larger volumes of commodity.
Economies of Scale
The act of a country imposing tariffs to safeguard domestic producers.
Protectionism
A smaller-volume unit designed for transport of consumer goods via vessel or rail.
Container
Defined as cash price minus futures price which also determines a hedging outcome.
Basis
Distribution system utilizing more than one form of transportation.
Multi-Modal
Technical price action which exceeds the high and low price from a prior trading session.
Reversal
The most critical link in the U.S. transportation system.
Truck
Unit-shipments which maximize efficiency by making frequent cross-country trips.
Shuttle Train
Producer marketing alternative implemented to protect against lower prices.
Short Hedger
The most expensive component of the U.S. agricultural commodity logistics system
Transportation
Producer marketing alternative implemented to protect against higher prices.
Long Hedger
Mode of agricultural transportation which provides the lowest per unit cost of shipment.
Ocean Vessel
True or False
Basis is defined as cash price minus futures price and may be either positive or negative.
True
A wheat producer conceded about a decline in the price of wheat would place what type of hedge?
a. short hedge
b. long hedge
a. short hedge
A short hedger would receive a higher price than expected under which of the following basis outcomes between the time the hedge is place and when the hedge is lifted?
a. Going from 75 over to 50 over
b. Going from 5 over to 5 under
c. Going from 10 over to even
d. Going from 50 over to 75 over
d. Going from 50 over to 75 over
A feedlot operator concerned about an increase in the price of feeder cattle would place what type of hedge?
a. short hedge
b. long hedge
b. long hedge
A long hedger would pay a lower price than expected under which of the following basis outcomes from the time the hedge is placed and when the hedge is lifted?
a. Going from 15 over to 25 over
b. Going from 5 under to 5 over
c. Going from 10 over to 10 under
d. Going from 50 over to 75 over
c. Going from 10 over to 10 under
A hedger places a short hedge locking-in futures at $5.00 with an expected basis of $ + .50 and a final basis of $ + 1.00 per bushel. The actual final price received from the hedge is:
a. $4.00
b. $4.50
c. $5.50
d. $6.00
d. $6.00
True or False
A strike price is the price level at which an option buyer has the right to buy or sell the underlying futures contract.
True
A buyer of a $7.00 Strike PUT option on September wheat could:
a. Let the PUT expire if futures prices go above $7.00
b. Sell the PUT at its current premium
c. Exercise the PUT and take a short futures position at $7.00
d. Any of the above
d. Any of the above
A feedlot operator concerned about the price of feeders going up between now and the time of buying feeders at the cash auction would buy which type of option?
a. PUT option
b. CALL option
b. CALL option
True or False
An option buyer of an $8.00 strike wheat PUT would lose money if futures prices decline to $6.00 per bushel.
False
An option buyer pays $1.50 per cwt for a CALL option and sells the CALL for $6.50 per cwt. What is the outcome of buying and selling the CALL option?
a. a profit of $5.00 per cwt
b. a loss of $5.00 per cwt
a. a profit of $5.00 per cwt
A feedlot operator buys a $140 strike call option for $5. Feeder cattle futures rally to $160 and he sells the call for $20. What is the outcome from hedging with the call option.
a. A net loss of $5
b. A net loss of $15
c. A net gain of $5
d. A net gain of $15
d. A net gain of $15
True or False
In options markets, only one strike price is available for each month a commodity is traded.
False
An option buyer lets an option expire worthless. To account for this outcome the option buyer should:
a. Subtract the cost of the option from the cash selling price
b. Add the cost of the option to the cash purchase price
c. both A and B
c. both A and B
Proven long-term benefits of intentional trade include all of the following except:
a. Market expansion and increased demand
b. Increased efficiency and output through global competition
c. Using food as a political weapon
d. Improved quality, variety, and lower price of ag products
c. Using food as a political weapon
If the Japanese YEN strengthens relative to the U.S DOLLAR, which of the following wold be true:
a. U.S wheat will be more expensive to Japanese consumers
b. Japanese tourists would enjoy lower cost vacations to Hawaii
c. Tractors produced in Japan will be less expensive to the U.S consumer
d. Both A and C would be true
b. Japanese tourists would enjoy lower cost vacations to Hawaii
The complete ban of trade with another country is best defined as:
a. Embargo
b. Export Subsidy
c. Import Tariff
d. Import Quota
a. Embargo
True or False
A U.S trade surplus would occur if the U.S exports $9 billion of goods to Mexico and imports $8 billion of goods form Mexico
True
True or False
Comparative advantage is a primary reason for international trade.
True
True or False
U.S. wheat and cattle producers benefits from a stronger U.S. dollar
False
True or False
If a country imposes import tariffs on a particular good, that country’s consumers will typically pay higher prices for that good.
True
True or False
Protectionism is the policy of a country to restrict imports to safeguard that country’s domestic producers.
True
Agricultural demands on the transportation system include which of the following:
a. perishable products
b. Inventory Management
c. Bulk movement of low-value per unit products
d. All the above
d. All the above
True or False
Economies of scale refers to deriving efficiency and lower costs through the handling and shipping of larger volumes of a product.
True
Which of the following modes of transportation has the lowest cost per mile for large-scale movement of agricultural commodities and consumer goods?
a. Truck
b. Barge
c. Railcar
d. Ocean vessel
d. Ocean vessel
A wheat producer in eastern Montana would most likely utilize which mode of transportation in getting his wheat to a west coast export terminal?
a. Truck
b. Barge
c. Railcar
d. Ocean vessel
c. Railcar
Which of the following modes of transportation has the highest cost per mile for movement of agricultural commodities and consumer goods?
a. Truck
b. Barge
c. Railcar
d. Ocean vessel
a. Truck
Getting the right product, to the right plant at the right time is best defined as:
a. Transportation
b. Creative Destruction
c. Logistics
d. Economies of Scale
c. Logistics
The largest cost component of the logistics function is:
a. Administration
b. Inventory and Storage
c. Transportation
d. None of the above
c. Transportation
