1. Commodity Marketing ~A Review

2. #1. The premise that makes hedging possible is cash & futures prices:
Move in opposite directions
Move upward & downward by identical amounts
Generally change in the same direction by similar amounts
Are regulated by the exchange

3. #2. To hedge against an increase in prices, you would:
Purchase futures contracts
Sell futures contracts

4. #3. A farmer’s crop is still in the. field
#3. A farmer’s crop is still in the field. His cash market position is:
Long
Short
Neither, since the crop hasn’t been harvested
Neutral, because he has no position in the futures market

5. #4. Assuming your local cash price is. generally quoted under the CBOT
#4. Assuming your local cash price is generally quoted under the CBOT futures price, an increase in transportation costs in your area would be expected to have what effect on the basis:
Weaken the basis
Strengthen the basis
No effect on the basis

6. #5. If you have a long cash market. position & do not hedge it, you
#5. If you have a long cash market position & do not hedge it, you are:
A speculator
In a position to profit from an increase in price
Subject to a loss if prices decline
All of the above

7. #6. Assume your supplier’s cash. market price is generally quoted
#6. Assume your supplier’s cash market price is generally quoted over the CBOT futures price. If you hedge by purchasing a futures contract, a good time to purchase product and lift the hedge would be:
Once you have hedged, it makes no difference
When the basis is relatively weak
When the basis is relatively strong
Whenever the cash market price is highest

8. #7. Suppose you purchase a May corn futures contract at. $2
#7. Suppose you purchase a May corn futures contract at $2.75/bu & the basis is 5¢ under when you actually buy corn from your supplier in April What would be the net purchase price in April if the May corn futures price is:
May Futures Net Purchase Price
$ $_________ per bu
$ $_________ per bu
$ $_________ per bu
2.70
$ (futures loss)
2.70
$ (futures gain)
2.70
$ (futures gain)

9. #8. A Nov. soybean call has a. strike price of $6. 50. The
#8. A Nov. soybean call has a strike price of $ The underlying Nov. futures price is $ The intrinsic value is: _______________
$0.50

10. #9. A March soybean call has a. strike price of $6. 50. The
#9. A March soybean call has a strike price of $ The underlying March futures price is $ The intrinsic value is: _______________
$0.00

11. #10. A Dec. wheat put has a. strike price of $3. 60. The
#10. A Dec. wheat put has a strike price of $ The underlying Dec. futures price is $3.20 The intrinsic value is: _______________
$0.40

12. #11. A May corn put has a strike. price of $2. 80. The underlying
#11. A May corn put has a strike price of $ The underlying May futures price is $ The intrinsic value is: _______________
$0.25

13. #12. A Sept. soybean put has a. strike price of $6. 20. The
#12. A Sept. soybean put has a strike price of $ The underlying Sept. futures price is $ The intrinsic value is: _______________
$0.00

14. #13. A $2. 70 Dec. corn call is. selling for a premium of 35¢
#13. A $2.70 Dec. corn call is selling for a premium of 35¢. At the time, Dec. corn futures are trading at $ The time value is: _______________
$0.05

15. #14. A wheat call has a strike. price of $3. 70. At expiration,
#14. A wheat call has a strike price of $ At expiration, the underlying futures price is $ The time value is: _______________
$0.00

16. #15. The time value of an option. is typically greatest when an
#15. The time value of an option is typically greatest when an option is _______-the-money. at

17. #16. All else being equal, an option. with 60 days remaining until
#16. All else being equal, an option with 60 days remaining until expiration has more or less time value than an option with 30 days remaining until expiration? ________
more

18. #17. If market volatility increases, the time value portion of the option generally ________.

19. #18. The buyer of an option can:
Sell the option
Exercise the option
Allow the option to expire
All of the above

20. #19. Upon exercise, the seller of a call:
Acquires a long futures position
Acquires a short futures position
Acquires a put
Must pay the option premium

21. #20. Funds must be deposited to a margin account by:
The option seller
The option buyer
Both the option buyer and the seller
Neither the option buyer nor the seller

22. #21. Premiums for options are:
Specified in the option agreement
Arrived at through competition between buyers and sellers
Determined at the time an option is offset

23. #22. What 2 factors have the. greatest influence on an
#22. What 2 factors have the greatest influence on an option’s premium?
The length of time remaining until expiration & volatility.
Time & interest rates.
Interest rates & volatility.

24. #23. If you pay a premium of. 10¢/bu for a corn put option
#23. If you pay a premium of 10¢/bu for a corn put option with a strike price of $2.60, what’s the most you can lose?
10¢/bu
$2.60/bu
Your potential loss is unlimited

25. #24. If you sell (write) a call option & receive a premium of 30¢/bu, what’s the most you can lose?
The initial margin deposit
Your potential loss is unlimited

26. #25. Spreads are another useful marketing tool. They involve…
Looking between contract months for signals
Consider if there is enough carrying charge to hold grain until a later contract month
Can be speculated on if the spread is abnormally wide or narrow
All of the above