If a financial manager must sell a product in the future that is currently being manufactured, that individual may reduce the risk of loss from a price decline by
1) entering a futures contract to sell the good
2) entering a futures contract to buy the good
3) establishing a short position
4) establishing a long position
A)1 and 3
B)1 and 4
C)2 and 3
D)2 and 4

Question

If a financial manager must sell a product in the​ future that is currently being manufactured, that individual may reduce the risk of loss from a price decline by
1) entering a futures contract to sell the good
2) entering a futures contract to buy the good
3) establishing a short position
4) establishing a long position
A)​1 and 3
B)1 and 4
C)2 and 3
D)​2 and 4

Quizplus · Accepted Answer

Entering a futures contract to sell the good (choice 1) allows the financial manager to lock in the sale price, thus reducing the risk of loss from a price decline. Establishing a short position (choice 3) also allows the financial manager to profit from a price decline in the future, thereby reducing the risk of loss. Entering a futures contract to buy the good (choice 2) and establishing a long position (choice 4) would not provide protection against price declines and may actually increase the risk of loss.

If a Financial Manager Must Sell a Product in The​

If a Financial Manager Must Sell a Product in The