Answer questions 3, 4, and 5. Refer to images uploaded below. 3) Biscuits, Inc. (a pastry and baking products company) uses 200,000 bushels of wheat each year. To assure a steady supply of wheat and to provide customers with consistent product line and stable prices, Biscuits agrees upon a contract for wheat with its supplier in January, with a July delivery. How Biscuits, Inc. can hedge the risk of a wheat price increment? a) Biscuits, Inc. can hedge the risk of increasing price for wheat using a call option. b) Biscuits, Inc. can hedge the risk of increasing price for wheat using a long position forward contract. c) Biscuits, Inc. can hedge the risk of increasing price for wheat using a long position future contract. d) Biscuits, Inc. can hedge
Answer questions 3, 4, and 5. Refer to images uploaded below.
3) Biscuits, Inc. (a pastry and baking products company) uses 200,000 bushels of wheat each year. To assure a steady supply of wheat and to provide customers with consistent product line and stable prices, Biscuits agrees upon a contract for wheat with its supplier in January, with a July delivery. How Biscuits, Inc. can hedge the risk of a wheat
a) Biscuits, Inc. can hedge the risk of increasing price for wheat using a call option.
b) Biscuits, Inc. can hedge the risk of increasing price for wheat using a long position forward contract.
c) Biscuits, Inc. can hedge the risk of increasing price for wheat using a long position future contract.
d) Biscuits, Inc. can hedge the risk of increasing price for wheat using a put option.
4) One possible solution to the adverse selection problem is to offer warranty, as it would be viewed as a signal of quality. ‘Signaling’ refers to?
i) Actions of the ‘Informed party’ in the adverse selection problem
ii) Actions of the ‘Less informed party’ in the adverse section problem
iii) Actions of an Insurance company to gather information
a) Only i
b) Both i and ii
c) Both i and iii
d) Both ii and iii
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