Back To School Quiz #5
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Back to School with Ed Usset, is a new feature of Corn & Soybean Digest, in cooperation with Ed Usset and the Center for Farm Financial Management. Ed’s challenging and authentic quiz questions are designed to test your grain marketing knowledge, and will help you learn while having fun! Ed Usset is the author of “Grain Marketing is Simple, It’s Just Not Easy,” and is a grain marketing specialist at the University of Minnesota.
- 1.Buying put options (the right to sell futures) is one way to establish a minimum price. Let’s assume that Nov’10 soybean futures are trading at $9.30, and you decide to pay 52 cents per bushel for a 920 put. You expect a harvest soybean basis of 60 cents under the November contract. What is your minimum expected price for soybeans at harvest?
- A.
A. $9.30
- B.
B. $9.20
- C.
C. $8.70
- D.
D. $8.08
- 2.What do you call a futures trading strategy involving the simultaneous purchase of a nearby futures contract and sale of a deferred contract in the same commodity?
- A.
Short straddle
- B.
Bear spread
- C.
Bull spread
- D.
Intercommodity spread
- 3.In an earlier “Back to School” segment, we worked through the math of calculating your minimum price when you choose to buy put options. Let’s assume that you do it – you buy 920 November soybean puts (the right to sell) in the spring to set a minimum price on your soybean production in the fall. Between now and harvest, which way would you like to see prices trend?
- A.
Higher
- B.
Lower
- 4.2009 was quite a year for corn yields in this country. The U.S. average corn yield set a record at nearly 165 bushels per acre. This question should give you some perspective on just how rapidly corn yields have grown. What was the first year when the U.S. average corn yield topped 120 bushels per acre?
- A.
1986
- B.
1987
- C.
1992
- D.
1995
- 5.When was the last year that December corn futures had a higher price on October 1 than on May 1?
- A.
2008
- B.
2006
- C.
2004
- D.
2002
- 6.A traditional definition of hedging is the use of futures as a temporary substitute for a later transaction in the cash market. What is cross-hedging?
- A.
Hedging that involves the use of put options
- B.
Hedging of a commodity that has no futures contract
- C.
Hedging when you woke up on the wrong side of the bed
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