Question
A grain seller forward contracts 2,000 bushels of corn $2.50/bu. For harvest delivery. When harvest time arrives the price has moved to $3/bu. What is
A grain seller forward contracts 2,000 bushels of corn $2.50/bu. For harvest delivery. When harvest time arrives the price has moved to $3/bu. What is the price the seller receives for the bushels contracted.
1. Forward contracting allows the grain seller to eliminate downside price risk? Yes or no? Explain your answer.
2. When forward contracting, premiums are sometimes negotiated between the buyer and the seller for large volume contracts? Yes or no? Explain your answer.
3. When entering a forward contract, the seller is obligated to fill the contract, even in the event of a production shortfall? Yes or no?
4. Forward contracting gives the grain seller added flexibility in getting the grain to a delivery point? Yes or no? Explain your answer.
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