QUESTION 16

A farmer uses a short hedge and has large margin calls during the holding period and still has them at Time 2. Which is true?

		There will be a big gain on the futures side of the hedge
		They wont have to satisfy those margin calls because the gain in the cash part of the hedge offset those losses on the futures side
		They would have been better off if they had not hedged, and had just sold the grain to the elevator at Time 2
		Theyre much better off because they hedged

QUESTION 17

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 price of the December futures contract has fallen 82 cents. 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 cash price at Time 2?

		$7.23/bu
		$7.67/bu
		$6.88/bu
		$6.31/bu

QUESTION 18

The amount that a trader pays to acquire a call is the

		underlying
		expiration
		strike price
		premium

QUESTION 19

A hedger uses a short hedge and basis at Time 2 turns out to be wider than expected. Which is true?

		theyll get more than the price they expected when they placed the hedge at Time 1
		whether they get more or less than they expected when they placed the hedge at Time 1 depends on whether futures rose or fell between Time 1 and Time 2
		theyll get less than the price they expected when they placed the hedge at Time 1
		theyll get exactly the price they expected when they placed the hedge at Time 1

QUESTION 20

In May, Farmer Illini 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 $5.20/bushel and she knows that basis in October (when she expects to deliver and sell her corn and lift the hedge) is usually 10 cents over. She places the hedge at Time 1, then harvests the corn, delivers it to the elevator and lifts the hedge at Time 2. It turns out that basis at Time 2 is 12 cents better than expected. What net price does she receive?

		$5.18/bu
		$5.22/bu
		$4.98/bu
		$5.42/bu