Which one of the following methods of setting prices would reduce the transactions exposure for both the buyer and seller of a commodity swap contract?
A) Setting a permanent price at which a commodity will be traded
B) Setting the price at the minimum spot price during a given period of time
C) Setting the price equal to the spot price on the delivery date
D) Using the average market price over a given period of time
E) Setting the contract price equal to some percentage, less than 100 percent, of the market price on any given day

Question

Quizplus · Accepted Answer

Using the average market price over a given period of time reduces transaction exposure for both parties by smoothing out price volatility and providing a more predictable and fair pricing mechanism.

Which One of the Following Methods of Setting Prices Would