QUESTION 1

Who would use a short hedge?

		A natural short because theyre worried about the possibility of falling prices
		A natural long because theyre worried about the possibility of rising prices
		A natural short because theyre worried about the possibility of rising prices
		A natural long because theyre worried about the possibility of falling prices

QUESTION 2

A short hedge

		allows a hedger to lock in a minimum price on the hedged bushels, but leaves the opportunity to increase the selling price on those bushels if cash prices rise between Time 1 and Time 2
		allows the hedger to lock in the futures part of the final cash price at Time 1, and to lock in the basis part at Time 2
		allows the hedger to lock in the basis part of the final cash price at Time 1, and to lock in the futures part at Time 2
		allows a hedger to lock in a minimum price on the hedged bushels, but leaves the opportunity to increase the selling price on those bushels if futures prices rise between Time 1 and Time 2

QUESTION 3

The price at which a call owner is entitled to buy the underlying futures contract is the

		strike price
		debit
		premium
		expiration

QUESTION 4

In May, Farmer Jones is looking at futures prices and considering using a hedge to lock in a price on part of her corn crop. She sees that the December futures contract is trading at $7.40/bushel and she knows that basis in October (when she expects to deliver and sell her corn and lift the hedge) is usually 25 cents under. When Time 2 arrives, the cash price is $6.95/bushel She harvests the corn and lifts the hedge by selling the cash corn and liquidating the futures part of the hedge. Basis at Time 2 turns out to be -27. What is the gain or loss on the futures position at Time 2?

		A loss of 18 cents/bu
		A loss of 45 cents/bu
		A gain of 45 cents/bu
		A gain of 18 cents/bu

QUESTION 5

Options are described as

		a derivative because the value of the option is derived from the value of the futures contract to which it refers
		an obligation to carry out a futures transaction at a specified future date at a specified price
		a risk free investment
		a commodity

QUESTION 6

One reason a farmer might choose to use a hedge instead of a forward contract is

		with the hedge both the basis part and the cash part of the net cash price are already locked in at Time 1
		with the hedge, the farmer can deliver to any elevator at Time 2
		with the hedge, there wont be any chance of margin calls
		with the hedge, there is no basis risk

QUESTION 7

In June, Farmer Jones is looking at futures prices and considering using a hedge to lock in a price on part of his soybean crop. He sees that the November futures contract is trading at $16.20/bushel and he knows that basis in October (when he expects to deliver and sell his beans and lift the hedge) is usually 30 cents under. When he lifts the hedge, the cash price is $14.92, and basis is 12 cents narrower than expected. What is the gain or loss on the futures side of the hedge when the farmer lifts at Time 2?

		a loss of $.98/bu
		a gain of $1.10/bu
		a gain of $.98/bu
		a loss of $1.10/bu

QUESTION 8

A farmer places a hedge at Time 1. The price of the futures contract at Time 1 was 781 and the farmer expected basis at Time 2 to be -37. At Time 2, the futures price is 757 and the basis is -39 . What is the cash price at Time 2?

		796
		718
		720
		742

QUESTION 9

In June, Farmer Jones is looking at futures prices and considering using a hedge to lock in a price on part of his soybean crop. He sees that the November futures contract is trading at $16.20/bushel and he knows that basis in October (when he expects to deliver and sell his beans and lift the hedge) is usually 30 cents under. When Time 2 arrives and he exits the hedge, basis is 26 under. What net price does he receive?

		15.94/bu
		$15.90/bu
		$15.86/bu
		$16.04/bu

QUESTION 10

A farmer might consider a storage hedge if

		there is a normal forward curve
		the futures market is in backwardation
		the farmer has no on-farm storage and will use commercial storage at the elevator
		there is an inverted forward curve