QUESTION 1

You need 145,000 bushels of corn for your production operations in July. The futures contracts on corn are based on 5,000 bushels and are currently quoted at $5.19 per bushel for delivery in July. If you want to hedge your cost, you should _____ contracts at a cost of _____ per contract.

	a.	Sell 27; $25,950
	b.	Buy 27; $752,550
	c.	Buy 29; $25,950
	d.	Sell 29; $752,550

QUESTION 2

Following the previous question, if corn prices are $5.08 per bushel in July, what is the profit or loss on your futures position?

	a.	$397,100 loss
	b.	$397,100 gain
	c.	$15,950 gain
	d.	$15,950 loss

QUESTION 3

Suppose a financial manager buys call options on 45,000 barrels of oil with an exercise price of $31 per barrel. She simultaneously sells a put option on 45,000 barrels of oil with the same exercise price of $31 per barrel. Her net profit per barrel is _____ if the price per barrel is $29 and _____ if the price per barrel is $35.

	a.	-$2; $4
	b.	-$4; $2
	c.	-$2; $0
	d.	$0; -$2