A silver mining company has used futures markets to hedge the price it will rece
ID: 2641851 • Letter: A
Question
A silver mining company has used futures markets to hedge the price it will receive for everything it will produce over the next 5 years. Which of the following is true?
It is liable to experience liquidity problems if the price of silver rises dramatically
It is liable to experience liquidity problems if the price of silver rises dramatically or falls dramatically
It is liable to experience liquidity problems if the price of silver falls dramatically
The operation of futures markets protects it from liquidity problems
A.It is liable to experience liquidity problems if the price of silver rises dramatically
B.It is liable to experience liquidity problems if the price of silver rises dramatically or falls dramatically
C.It is liable to experience liquidity problems if the price of silver falls dramatically
D.The operation of futures markets protects it from liquidity problems
Explanation / Answer
Answer: The operation of futures markets protects it from liquidity problems
Reason: Futures help reduce transaction costs and increase liquidity as they are viewed as an insurance or risk management.
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