Title: Identify the basics of futures contracts and how they are used as a hedging strategy.
Course: Agricultural Business Management III (18201-36) > Section: Investigating Commodity Markets, Futures Markets, and Hedging Contracts

Identification should include

- defining a futures contract—a standardized, legal agreement to buy or sell an asset at a predetermined price and quantity on a specified date in the future
- describing how futures contracts allow corporations—especially corporations that are producers and/or consumers of commodities—and investors to hedge against unfavorable price movements of the underlying assets
- describing how corporations invest in the futures market to lock in a more favorable price in advance of a transaction they are required to make in the future
- describing the advantages for investors looking to participate in the futures market, and how it can remove the uncertainty related to the future price of a security or a financial instrument.

Process/Skill Questions:

- What is a futures contract?
- What are the advantages of using futures contracts or hedging?
- Why would a company enter into a contract to buy or sell an asset at a predetermined price at a specified time in the future?
- What are the risks involved if the price swings the other way?