Insurance is often an effective way to reduce risk

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Insurance is often an effective way to reduce risk when the insurance company can spread its risk over many different policies.
Forward contracts are marked to market. FALSEUnlike options, the purchase of a futures contract is a binding obligation to purchase at a fixed price at contract maturity.
How might a firm such as General Mills protect itself against fluctuations in raw material prices for breakfast cereals? Buy
A commodity producer who is worried about future prices can best hedge by: selling a futures contract.The purpose of a margin account for a futures contract is to: provide a cushion for the exchange against defaults on the contract.The process of marking a futures contract to market means that: profits or losses are settled daily.A futures contract calls for delivery of 60,000 pounds of soybean oil. What happens to the seller of a soybean oil futures contract at 41 cents per pound if the futures price closes the next day at 42 cents per pound?
The contract is marked to market with a $600 loss.
A futures contract seller is obligated to deliver 5,000 bushels of soybeans for $12.00 per bushel at expiration. If soybean futures close at $12.10 the next day, the seller: has a loss of $500 thus far on the contract.
Hershey's Chocolate is concerned about cocoa prices, which are currently $3,000 a ton. Analysts project that the cost of cocoa purchases could vary from $2,900 to $3,100 a ton. A September call option can be purchased with a $2,950 exercise price for $145. What is Hershey's worst-case scenario if it purchases these options? Cocoa prices will fall below $2,950 and
A gasoline distributor buys a gasoline futures contract to receive 42,000 gallons of gasoline at $2.94 per gallon. How is the account marked to market if gasoline futures close the next day at $2.97? A gain of $1,260 is posted to the account.
Which one of the following futures contract holders is speculating? A cattle rancher who buys live cattle futuresA clothes producer hedges its future cotton purchases by buying cotton futures. The futures contract provides the producer with 50,000 pounds of cotton at a price of $0.80 per pound. By contract expiration the producer finds that cotton prices have declined to $0.73 per pound. As a result of the futures contracts, the producer will: lose $3,500 per contract in the futures
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