2016-FRR Exam Dumps | To protect the oranges harvest price level, a farmer needs to take a hedge position. Provided that he

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GARP.2016-FRR.v2024-09-09.q145
Question 30

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Question 30/145

To protect the oranges harvest price level, a farmer needs to take a hedge position. Provided that he produces the amount he hedged, which one of the following four strategies will allow the farmer to accomplish his goal?

A. Going short on oranges futures contracts

B. Going long on oranges futures contacts

C. Entering into a customized forward contract with the bank

D. Negotiating a credit line facility

Correct Answer: A

* To hedge against the price risk of a future harvest, a farmer would take a position opposite to their exposure.
* By going short on futures contracts, the farmer locks in a selling price for the oranges, protecting against a potential decline in market prices at the time of harvest.
* This strategy effectively sets a future selling price, ensuring revenue stability regardless of market
* fluctuations.

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