The user of a commodity who is trying to insure against the price of the commodity rising would:
A) take the short position in a futures contract.
B) take the long position in a futures contract.
C) be better off speculating on price movements and earning higher profits.
D) want to hedge by selling a futures contract.

Question

Quizplus · Accepted Answer

Taking the long position in a futures contract allows the user to lock in a purchase price for the commodity, effectively insuring against the price of the commodity rising in the future. This strategy is used to hedge against price increases.

The User of a Commodity Who Is Trying to Insure