1. You are a baker. You plan to bid on a contract that will supply the armed forces with bread for a whole year.Although this is a great opportunity for you, you must agree to a price today and hold to that price for the entire year. What risk do you face with this arrangement and how can afutures contract could transfer the risk.

2. What is a CDS and how did they contribute to the financial crisis of 2007 - 2009?

3. What type of option should you buy if you are planning to sell $500,000 of Treasury bonds in one year's time and want to hedge against the risk of interest rates rising? Why?