You are the CFO of a pasta company. You have a large contract to sell 100.000kg of pasta to a wholesale grocery company in 380 days, for which the selling price was settled upfront. The pasta plant produces 20 kg of pasta out of 1 bushel of wheat. Logistic constraints prevents you from buying wheat to produce the pasta upfront, so you will buy wheat to fulfill that contract only in one year time. In order to manage the risks for increasing wheat prices, you get into a futures contract. If the futures price for 1 bushel of wheat is $8 for a 1 year contract, and one futures contract unit is 5000 bushels, how do you hedge your position?

Select one:

a. Long 20 futures contracts. At expiration pay $800.000 against delivery of the wheat amount on the contracts.

b. Long one futures contract. At expiration pay $40.000 against delivery of the wheat amount on the contract.

c. Short one futures contract. At expiration pay $40.000 against delivery of the wheat amount on the contract.

d. Short 20 futures contracts. At expiration pay $800.000 against delivery of the wheat amount on the contracts.