Question #7
Reading: Reading 32 Introduction to Commodities and Commodity Derivatives
PDF File: Reading 32 Introduction to Commodities and Commodity Derivatives.pdf
Page: 3
Status: Incorrect
Correct Answer: B
Your Answer: B
Question
Ben Tarson, CFA is currently undertaking an analysis of the commodity markets to present to a potential client. Part of his presentation concerns the impact short hedgers have on the price of commodity futures contracts. Which of the following market participants is most likely to take a short hedge position?
Answer Choices:
A. A hedge fund buying copper in the spot market and selling copper futures contracts
B. Wheat farmer looking to sell wheat forward
C. Airline looking to purchase fuel forward
Explanation
The wheat farmer is looking to lock in the sales price of his product. This is a short hedge
as the farmer will sell contracts. The airline is looking to undertake a long hedge and the
hedge fund is looking to make an arbitrage trade.