Question

What is the purpose of a Commodity Derivative?

a.

To speculate on the price of commodities.

b.

To protect farmers from the risk of crop prices going above the cost price.

c.

To facilitate standardized derivative contracts.

d.

To trade on organized futures exchanges.

Posted under IC 89 Management Accounting

Answer: (b).To protect farmers from the risk of crop prices going above the cost price. Explanation:A Commodity Derivative is an instrument used to protect farmers from the risk of the price of their crop going below the cost price of their produce.

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Q. What is the purpose of a Commodity Derivative?
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