Question
John works for Brown Corp. His company will have to purchase wheat in the future in order to make their Brown products. Wheat is currently
John works for Brown Corp. His company will have to purchase wheat in the future in order to make their Brown products. Wheat is currently at a price of $4 per bushel today. John wants to eliminate the risk that the price the company pays for wheat will exceed $4 per bushel. Which of the following positions would John take to hedge against an increase in the price of wheat?
A. A long position in a forward contract on wheat with a contract price of $4 per bushel
B. A long put option on wheat with a strike price of $4
C. A long call option with a strike price of $4 per bushel
D. (a) and (b)
E. (a) and (c)
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