A clothes producer hedges its future cotton purchases by buying cotton futures. The futures contract provides the producer with 50,000 pounds of cotton at a price of $0.80 per pound. By contract expiration the producer finds that cotton prices have declined to $0.73 per pound. As a result of the futures contracts, the producer will:

Multiple Choice

lose $3,500 per contract in the futures market which offsets gains in the cash market.

gain $3,500 per contract in the futures market which offsets losses in the cash market.

lose $3,500 per contract in the futures market which offsets losses in the cash market.

gain $3,500 per contract in the futures market and gain $0.07 per pound in the cash market.