Farmer Jones raises several hundred acres of corn and would suffer a significant loss should the price of corn decline at harvest time

1.

Farmer Jones raises several hundred acres of corn and would suffer a significant loss should the price of corn decline at harvest time. Which one of the following would he be doing if he purchased financial securities to offset this price risk?    A.  abating B.  deriving C.  hedging D.  forwarding E.  manipulating Refer to section 23.2

2.	The value of a stock option is dependent upon the value of the underlying stock. Thus, a stock option is a:    A.  forward agreement. B.  derivative security. C.  mezzanine asset. D.  contingent security. E.  junior security. Refer to section 23.2

3.

Farmer Mac owns a large orange grove in Florida. The value of his business is directly related to the price of oranges. Which one of the following is a graphical representation of this price-value relationship?    A.  exchange line B.  net present value profile C.  risk profile D.  market line E.  return grid Refer to section 23.2

4.

Farmer Ted planted 200 acres in wheat this year. The weather has been perfect and he expects to harvest a record crop within the next two weeks. At present, he has no storage facilities and therefore must sell his crop as soon as it is harvested. Which one of the following risks is he facing because he must sell his crop at whatever the market price is at harvest time?    A.  futures risk B.  volatility exposure C.  surplus risk D.  transactions exposure E.  translation exposure Refer to section 23.2