A farmer expects an output of 500 tonnes of wheat in the month of May. He expects wheat prices in May to go down. The current month is February and the cost of wheat per tonne is ₹ 1043. The May month future of wheat is

CS Professional · Capital Commodity and Money Market · PYQS · December 2019
A farmer expects an output of 500 tonnes of wheat in the month of May. He expects wheat prices in May to go down. The current month is February and the cost of wheat per tonne is ₹ 1043. The May month future of wheat is trading at ₹ 1,172. What position should he take in the future market to protect himself from a sudden fall?

Answer & Explanation:

To protect himself from a sudden fall in wheat prices, the farmer should take a short position (sell) in the future market. He should sell 500 tonnes of wheat at the May future price of ₹ 1,172.

Topics: Derivatives

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