For the 3 questions , consider the following situation:

Assume that McDonald's is concerned about the price it will need to pay for the orange juice that it will serve in its restaurants this winter.To reduce the price risk of its input, McDonald's decides to trade in the frozen concentrate orange juice (FCOJ) market.The current NOV20 FCOJ contract is trading at $1.4550 per pound.

1.In order to hedge, what should be McDonald'sfirstmove in the futures market?

a.Buy NOV20 FCOJ contracts today.

b.Sell NOV20 FCOJ contracts today.

c.Wait until November and then buy NOV20 FCOJ contracts.

d.Wait until November and then sell NOV20 FCOJ contracts.

2.When November 1st rolls around, McDonald's offsets its position.The NOV20 FCOJ futures contract price is trading at $1.2425/lb.Assuming there is no broker fee, what is McDonald's per pound profit/loss in the futures market?

a.$0.2000/lb. profit.

b.$0.2000/lb. loss.

c.$0.2125/lb. loss.

d.$1.6950/lb. loss.

3.Also on November 1^st, McDonald's buys its frozen concentrate orange juice on the cash market from its usual suppliers at $1.2375 per pound.Assuming no broker fees and accounting for profit/loss in the futures market, what is thenetprice per pound that McDonald's pays for its FCOJ?

a.$1.4600 per pound.

b.$1.4500 per pound.

c.$1.2425 per pound.

d.$1.0250 per pound.