Test Bank C

Incorporating, paying down debt and liability insurance provides a means to __________ .

• Increase profits

• Reduce risks

• Lower expenses

• Increase working capital

A financially secure farmer or rancher who is NOT very concerned about avoiding risk, when facing an event with an unpredictable outcome, will choose the strategy that __________ .

• Has the highest expected value for its possible outcome

• Has the smallest range between the best and worst possible outcomes

• Historically has had the smallest standards of deviation for its possible outcomes

• Has the lowest probability of an unfavorable outcome

Which marketing tool allows a producer to set minimum selling price but still benefit if prices trend upward significantly?

• Hedging

• Put options

• Forward contracting

• Selling on the spot of cash market

“Basic risk” in marketing refers to __________ .

• Unpredictable up and down movements in the futures market

• Unpredictable up and down movements in the cash market

• Unpredictable changes in the difference between futures and cash markets

• Unpredictable movements in interest rates on operating loans

Which type of forward pricing tool cannot be reversed or offset later?

• Forward contract with a local elevator

• Futures contract

• Put option

• Call option

Which of the following marketing strategies provides farmers who sell grain or livestock the LEAST protection against a decline in selling prices before they are ready to actually deliver the commodity?

• Buying PUT options in advance

• Selling at the cash price at the time of delivery

• Hedging with futures contracts in advance

• Forward contracting in advance

Under a Yield Protection crop insurance policy, a crop farmers’ yield loss results in an indemnity payment based on __________ .

• The average futures price before planting season

• The average futures price during the month of harvest

• The 10 year average cash price for that commodity

• That actual price the producer receives from selling the remaining crop

__________ insurance protects farm operators in case of the loss of a building from fire or wind.

• Life

• Property

• Liability

• Multiple peril crop

Which of the following strategies does NOT reduce production risk?

• Selling grain before harvest by a forward contract

• Applying insecticide to a crop

• Vaccinating livestock against disease

• Keeping a year's supply of extra hay stored

The safety-first strategy for choosing among risky alternatives assumes that the farm manager is most concerned with __________ .

• Achieving the highest average return over the long run

• Achieving the best possible result in a bad year

• Avoiding the worst possible result in a bad year

• Minimizing the chances of not breaking even