Risk Management & Mitigation Flashcards
7 cards from real Series 3 – The National Commodities Futures Test practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management & Mitigation flashcards as text
A wheat farmer expects to harvest in three months and wants to lock in today's price. Which hedge is appropriate?
Answer: Sell wheat futures
A producer long the physical crop offsets price-decline risk with a short futures hedge.
A bakery fears flour input costs will rise before its next purchase in two months. Which hedge fits?
Answer: Long hedge by buying wheat futures
A buyer of the commodity protects against rising prices by buying futures (a long hedge).
Basis is commonly defined as:
Answer: Cash price minus futures price
Basis equals the local cash price minus the nearby futures price.
A short hedger sells futures at 6.00 when cash is 5.80. When the hedge is lifted, cash is 5.50 and futures are 5.60. What is the net selling price per bushel?
Answer: 5.90
Cash 5.50 plus futures gain of 0.40 (6.00 - 5.60) equals 5.90.
Which risk remains even after a hedger matches the cash quantity with an equal futures position?
Answer: Basis risk
Cash and futures prices may not move in lockstep, so a change in basis still affects the result.
A hedger uses soybean meal futures to hedge a commodity with no listed futures contract but similar price behavior. This is a:
Answer: Cross hedge
Hedging with a different but correlated commodity is a cross hedge and adds basis risk.
A processor hedges expected purchases of a crop it has not yet contracted or taken possession of. This is called a(n):
Answer: Anticipatory hedge
An anticipatory hedge offsets price risk on expected future purchases or sales.
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Sources & references
Exam facts on this page (fees, format, dates, passing scores) are checked against these official sources; the date is our last check. Editorial policy
- finra.org — Score release, test dates, test delivery, fees, exam format, passing score · verified Oct 2026
- nfa.futures.org — Eligibility, score validity · verified Oct 2026