Ag Futures Exam 2 Word Scramble
|
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
| Question | Answer |
| True or False: Basis risk is greater than price risk | False |
| True or False: Hedging removes all risk | False, gets rid of price risk, left with basis risk |
| What is another term for short hedge? | Output Hedge |
| What does narrowing indicate when looking at basis from the short hedger stand point? | Stronger |
| What information is needed for expected profits? | Cost of Carry |
| What results from a short hedge realizing a better selling price than the target price? | Cash market strengthens (stronger basis) |
| In short hedging, if the basis narrows, what happens? | Money is made |
| When placing a short hedge, what position is taken in the futures market? | Short |
| True or False: If a hedger maintains opposite positions in the cash and futures market, it is no longer considered a hedge. | False |
| If crop production is strong and it is near harvest time, is the basis stronger or weaker and what does this do to a short hedger? | Weak, this is bad for short hedgers |
| Stronger basis will hurt the __ hedger and benefit the __ hedger. | long; short |
| What is an example of a cross hedge? | A sorghum producer buying corn futures |
| Using a similar contract for something that doesn't have a futures contract, but it is correlated to the price of your commodity. | Cross hedge |
| What is it called when a trader decides to hedge based on price expectations? | Selective Hedge |
| Any and all hedges are ____. | Anticipatory |
| What is the rule of thumb on the basis for a product when hedging in a main production area of a commodity? | Basis is normally negative |
| A short hedger will realize a price greater than target price if? | Basis is stronger |
| True or False: A corn farmer should short hedge to minimize the risk of rising prices. | False, falling prices |
| In a short hedge, what does a hedger do to protect him/herself against falling prices? | Sell futures |
| What can a long hedge be used for? | Purchasing an asset in the future in order to lock in the purchase price |
| What is a rolling hedge? | Allows to continue a hedge for additional months; offsets an original contract; opens a new position |
| A ___ basis is good for a buyer. | Negative |
| When a producer makes a hedge and the futures price goes up more than they expected what might they consider doing? | Place a hedge, but observe you can get a better target price, then roll the hedge forward |
| What does a long hedger short in basis mean? | The trader makes money if the basis decreases, and loses money if basis increases |
| True or False: Hedging can reduce price risk and also generate prices. | False |
| When does price risk occur for a feed lot operation? | On both ends |
| What is the purpose of hedging? | To reduce risk |
| For a ___ hedger, if basis weakens they make money | Long |
| If you are planning to lift a hedge in December, you would use the basis for which month? | January, because it is close to expiration but still actively trading |
| True or False: To continue a hedge for an additional month by offsetting the original contract while simultaneously initiating a new hedge in the same month this is called a rolling hedge. | False |
| What would a long hedger hope to expect to see from prices if he is buying now? | Prices go up |
| What affects target price? | Opening futures price and expected basis |
| The cash market price and the futures market price is ___ correlated. | Positively |
| What happens if the cash market price decreases relative to a futures price over time? | Basis weakens and benefits the long hedger |
| What characteristic is shared by both a long hedger and a short hedger? | Protection against fluctuations |
Created by:
ellenc6
Popular Agriculture sets