Which statement describes commodity futures contracts?

Which statement describes commodity futures contracts?

• A. A contract to buy or sell a commodity in the future at a given price.
• B. A contract to lease equipment for there months.
• C. An option to buy stock at expiration date.
• D. A supply agreement with a supplier.

Answer: (A)

Commodity futures contracts are standardized, exchange-traded obligations to buy or sell a specific quantity of a commodity at a predetermined price on a specific future date. This arrangement locks in a price today for a transaction that will occur later, which helps producers and buyers hedge price risk or allow for speculation. The statement describes exactly that: a contract to buy or sell a commodity in the future at a given price. The other options refer to different tools: leasing equipment is rental, not a futures agreement; an option to buy stock gives the right but not the obligation to purchase and is not the same as a futures contract; a supply agreement is an ongoing procurement deal, not an exchange-traded future with standardized terms.

Commodity futures contracts are standardized, exchange-traded obligations to buy or sell a specific quantity of a commodity at a predetermined price on a specific future date. This arrangement locks in a price today for a transaction that will occur later, which helps producers and buyers hedge price risk or allow for speculation. The statement describes exactly that: a contract to buy or sell a commodity in the future at a given price.

The other options refer to different tools: leasing equipment is rental, not a futures agreement; an option to buy stock gives the right but not the obligation to purchase and is not the same as a futures contract; a supply agreement is an ongoing procurement deal, not an exchange-traded future with standardized terms.