Project Management & Execution Flashcards

A soybean farmer expects to harvest in October and fears lower prices. Which hedge fits?

Answer: Short hedge

A producer holding or expecting to hold the physical commodity sells futures to lock in a price.

A cereal manufacturer wants to protect against rising wheat costs for future purchases. The appropriate hedge is:

Answer: Long futures

Buyers of the physical commodity hedge by buying futures.

Basis is generally calculated as:

Answer: Cash price minus futures price

Basis = cash price − futures price.

The basis moves from −10 to −5 cents. This change is called:

Answer: Strengthening of the basis

A basis becoming less negative or more positive is a strengthening basis.

In a contango market, the futures price relative to the spot price is:

Answer: Higher

Contango means deferred futures trade above spot, reflecting carrying costs.

A long speculator does not want to take delivery. What should they do before first notice day?

Answer: Offset the position or roll it to a later month

To avoid delivery notices, longs should liquidate or roll before first notice day.

Which of these is a cash-settled futures contract?

Answer: E-mini S&P 500

Stock index futures such as the E-mini S&P 500 settle in cash, with no physical delivery.