You are a candy maker and need to purchase a large amount of cocoa three months from now in preparation for the busy season. Your concern is that the price of coca will rise before you make your purchase. You should take a _________ position in the _________ market today.
A) Long; spot
B) Long; futures
C) Short; both spot and futures
D) Short; futures
E) Short; spot

Question

Quizplus · Accepted Answer

To protect against the potential rise in the price of cocoa, a candy maker should take a long position in the futures market. This allows them to lock in a price for the cocoa that they will need in the future, regardless of any price increases. Taking a long position in the spot market would not offer the same level of certainty, as the price could still increase before the purchase is made. Taking a short position in either market would be a speculation that the price of cocoa will decrease, which may not happen and could result in losses.

You Are a Candy Maker and Need to Purchase a Large