RM022 Quiz

What two basic risk management questions does a producer need to answer before deciding on how to manage price risk?

Answer explanation

What objective do I want to accomplish?, How can I reach that objective?

Which of these market tools is the least flexible but the easiest to use?

• Cash forward contract

• Hedge to arrive contract

• Hedging with a short futures contract

• Selective hedging

• Spot cash sale

Which of these market tools can be used at any time but comes with risks that may force the producer to pay a penalty or buy high-priced grain to fill out the contract?

• Cash forward contract

• Hedge to arrive contract

• Hedging with a short futures contract

• Selective hedging

• Spot cash sale

Which of these market tools is the most flexible when you want to set a specific price level?

• Cash forward contract

• Hedge to arrive contract

• Hedging with a short futures contract

• Selective hedging

• Spot cash sale

Which of these market tools involves placing hedges only when the market offers specific price objectives and may be defined as a "speculative" transaction?

• Cash forward contract

• Hedge to arrive contract

• Hedging with a short futures contract

• Selective hedging

• Spot cash sale

Which of these market tools sets the price in advance but leaves the basis open until a time the seller chooses?

• Cash forward contract

• Hedge to arrive contract

• Hedging with a short futures contract

• Selective hedging

• Spot cash sale

Some grain buyers can offer minimum price contracts because they:

• Trade in futures markets

• Buy put options

• Are willing to take risk

• Sell options

Which strategy is a farmer using if he accepts market volatility and takes whatever price is offered?

• Retaining risk

• Shifting risk

When a farmer retains market risk, he or she is accepting market _______________ and will need to set aside funds for _______________ -_______________ in case there is a loss.

Risk is defined as the probability of a _______________ that would prevent you from reaching a _______________ or an objective.