QUESTION 31

1. The primary economic functions of exchange-traded futures contracts are to:

a. Allow individuals to participate and equalize the "playing field" for all participants, big and small.

b. Permit buyers and sellers to transfer risk to or from others for commodities traded on the exchange as well as for price discovery.

c. Provide an alternative investment compared to stocks and bonds.

d. Allow investors to use leverage to enhance investment returns.

QUESTION 32

1. Jarvis is a coffee farmer who wants to hedge his entire coffee crop that will be harvested by September. The December coffee contract (which consists of 37,500 pounds of coffee) is trading at $2.00 per pound, which the farmer views as a profitable price. To hedge the entire crop, which is expected to weigh 150,000 pounds, at the best price, Jarvis should:

a. Sell one December coffee forward contract at $2.00 per pound.

b. Purchase one December coffee forward contract at $2.00 per pound.

c. Sell four December coffee futures contracts at $2.00 per pound.

d. Buy four December coffee futures contracts at $2.00 per pound.