Jennifer believes that the price of sugar is too low and that the price will rise within the next calendar quarter. If she wishes to trade based on her belief she should: Select one: a. Take a long position in the futures market. b. Take a long spot position and a short futures position. c. Sell sugar in the spot market and take a long position in the futures market. d. Take a short position in the futures market. e. Sell sugar in the spot market.

Question

Business

Cloe Warren

15 June, 18:18

Jennifer believes that the price of sugar is too low and that the price will rise within the next calendar quarter. If she wishes to trade based on her belief she should: Select one: a. Take a long position in the futures market. b. Take a long spot position and a short futures position. c. Sell sugar in the spot market and take a long position in the futures market. d. Take a short position in the futures market. e. Sell sugar in the spot market.

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Answers (1)

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Camila Malone · Answer 1

a. Take a long position in the futures market

Explanation:

According to the scenario, computation of the given data are as follow:-

Assume that, the current price of sugar is $30, future price of sugar is $40 and after the next calendar quarter the actual price of sugar is $50. She will buy the sugar at $40 and sell that sugar at $50 in the market. She will generate the profit $50 - $40 = $10.

According to the analysis, she will take a long position in the futures market. So option (a) is correct.