CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

A chocolate company that uses the futures market to lock in the price of cocoa to protect a profit is an example of ______.

I. a long hedge
II. a short hedge
III. purchasing futures to guard against a potential loss
Correct Answer: I and III

User Contributed Comments 6

User Comment
yu0825 what is ia short hedge?
mishis short hedge is when you lock price to sell. Here its price to buy cocoa..
magicchip long = buy
short = sell
ankurwa10 needless to add, chocolate companies need to BUY cocoa.
kseeba17 Well its not exactly bought to guard against a potential loss, its bought to protect against an increase in price. AN really needs to work on using clearer language.
bushi @kseeba17: It is clear enough. A hedger uses the futures market to guard against the price increase of its input so it won't incur a loss due to that. Clear?
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