MANAGING RISKS AND PROFITS QUESTIONNAIRE |
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| Answers are found here: Quiz
Answers Module 1 1. Government policies in foreign countries have recently changed in ways that affect grain price volatility. True ____ False____. (info found here) 2. The increase from the previous year in world coarse grain (feed grain) production in 1996-97 is producing large world carryover stocks. True ___ False_____. (ans. found here) 3. China is no longer a corn exporter. True____ False_____. (ans. found here) 4. For the 1997/98 crop years, grain producers have a choice of insuring bushels per acre or resources per acre with crop insurance. True____ False_____. (ans. found here) 5. Risk management plans or strategies will eliminate
all risks. True ___ False____. Module 2 6. The Southern Oscillation Index (SOI) is a meteorological index associated with shifts in normal weather patterns and surface ocean currents. True____ False____. (ans. found here) 7. In general, research has shown that the SOI is not correlated with crop yield in the major corn-producing states. True_____ False_____. (ans. found here) 8. Besides the periods of time that they cover, the
major differences between short-, medium-, and long-range
weather forecasts are how each is prepared and what
variables are forecast. 9. Climate on a regional scale has not changed during
the 1900s. 10. Due to increasing levels of carbon dioxide, General Circulation Models generally forecast global surface warming and more precipitation. True_____ False_____. (ans. found here) 11. Depending upon the region, General Circulation Model forecasts of future climate may result in either improved or decreased crop yields. True ____ False____. (ans. found here) Module 3 12. The most important factors affecting the cash
costs of production for grain producers are:
13. A farmer whose cash cost break-even price is very close to the expected season average market price should use less risky marketing strategies than a farmer with a lower cash cost break-even price. True______ False ______. (ans. found here) 14. A financial contingency plan for below average
revenue years could include all but:
15 A grain producer's "liquidity gap" is the
difference between cash cost of production per acre
Module 5 16 Price and yield risks encountered by producers can be estimated using the concept of probabilities (odds) True _____ False_____. (ans. found here) 17 Crop insurance cannot change the probabilities (odds) of losses producers face from yield risks True ____ False _____. (ans. found here) 18 Using pricing tools, i.e., forward contracts, hedging, options, etc., changes the probability of facing very high or very low prices True ____ False ____.(ans. found here) 19 The odds that the yield will be higher than you expect is greater than the odds that the yield will be lower than you expect True ______ False _______. (ans. found here) 20 The odds are always higher that probabilities will be greater than the expected average price. True _____ False ______. (ans. found here) Module 6 21 The three components of price risk are futures
price levels, bases, and price spreads. 22. Basis risk is greater than the risk associated
with futures price levels. 23. Spreads in the futures markets represent the difference between nearby and deferred futures contracts True _____ False ______. (ans. found here) 24 Basis appreciation or improvement over time
represents the carry-in-the futures market (spread) and
the change in the local cash price relative to the change
in the futures price. 25 Returns to storage should be calculated on expected and actual basis improvement. Changes in the futures prices during the storage period represent speculation opportunities and should not be included as returns to storage. True ____ False _____. (ans. found here) Module 7 26 The different ways that a producer can "own" grain to speculate on higher prices include physical storage, owning futures, owning call options, holding minimum price contracts, holding basis contracts, or holding delayed pricing contracts. True ______ False ______. (ans. found here) 27 Traders of agricultural options are not subject to
margin calls. True ____ False _____. 28 Forward pricing can be accomplished with a cash contract or by selling futures ( hedging ). A weak ( wide ) basis generally favors hedging. True _____ False ______. (ans. found here) 29 Other than margin exposure, there are no additional risks when a producer attempts multi-year sales by hedging in the nearby futures contract with the expectation to roll the contract forward into the delivery period(s). True ______ False _____. (ans. found here) Module 4 30 Forward contracts for the sale of grain by someone
who sells grain frequently must be signed by the seller
in order to be enforced by the buyer of the grain. True
_____ False ______. 31 Verbal promises between the seller of the grain and the buyer of the grain made while contemplating an agreement are enforceable terms of a resulting contract, even if they are not included in the final written document. True ____ False ____. (ans. found here) 32 The farmer’s agent, a marketing consultant, cannot enter into a binding contract on behalf of the farmer. True _____ False _____. (ans. found here) 33 Cash forward contracts for the actual delivery of grain are excluded from regulation by the Commodity Futures Trading Commission: forward contracts are governed by the state’s Uniform Commercial Code. True _____ False _____. (ans. found here) 34 Under the Uniform Commercial Code in some states,
farmers are considered merchants. This legal distinction,
however, has little relevance to grain contracts. True
_____ False __x___. 35 Gains and losses from hedges on a crop are
considered capital gains and capital losses. 36 Gains and losses from speculative activity are
considered ordinary gains and ordinary losses and are
reported the same way as gains and losses on the actual
commodity involved. 37 Hedge and speculative transactions must be identified as such by the producer at or near the time of the transactions. True____ False_____. (ans. found here) 38 Multi-year contracts for grain (extending two or more years into the future) may be illegal, "off-exchange" contracts. True____ False_____. (ans. found here) Module 9 39 Crop Revenue Coverage (CRC), Income Protection (IP), or Revenue Assurance (RA) guarantees a minimum price. True ____ False ____. (ans. found here) 40 If there is a crop failure, Multi-Peril Crop Insurance (MPCI) guarantees the expected production in bushels. True _____ False _____. (ans. found here) Module 7 41 Selling 100% of expected production on futures or forward markets will in general reduce all risk. True _____ False ______. (ans. found here) Module 9 42 Insuring against revenue losses should cost more than insuring against yield and price losses separately. True _____ False _____. (ans. found here) 43 Year-to-year crop yield variability on my farm
compared to my county average is:
44 Year-to-year variability in crop revenue on my farm over the last 5 years has: pick one
45 The year-to-year variation in gross crop revenue per acre on my farm (without deficiency or transition payments) has been: pick one
Module 10 46 "Suppose that at planting time you expected to
obtain a corn yield in your farm of 145 bu/acre. However,
because of weather and pest problems, your actual yield
ends up being only 122 bu/acre." A. If you neither insured your crop nor hedged with
yield futures, then your actual yield a. 147 bu/acre. 47 If you lean toward being bearish about the corn yield outlook and intend to write a call option on corn yield, you will net a higher corn yield premium by: (ans. found here) a. writing a call option with a low strike corn yield than by writing a call option with a high strike corn yield. b. writing a call option with a high strike corn yield than by writing a call option with a low strike corn yield. 48 To achieve "insurance" against
lower-than-expected corn yields, you could: a. buy a corn yield call. 49 A corn yield option's value is influenced by: a. the length of time remaining until expiration. Module 8 50 A producer sells a put or call in the options
market to establish a minimum price. 51 All agree that a pre-harvest hedge, forward contract, or options contract will help the producer manage price risk. True _____ False _____. (ans. found here) Module 14 52 All agree that a pre-harvest hedge, forward contract, or options contract will help producers enhance profits. True ____ False _____. (ans. found here) Module 11 53 A producer does not have to be concerned about
production risks when crop insurance products are
incorporated into a marketing plan that manages price
risks. Module 14 54 During the 1985 to 1996 time period, there is some statistical evidence that producers could have increased profits by selling corn and soybeans prior to harvest rather than at harvest using combinations of hedges, synthetic puts, and puts. True ____ False _____. (ans. found here) Module 8 55 Grain prices offered at or prior to harvest should be used to offset production costs. Prices offered after harvest are payments for returns to storage. True ____ False ____. (ans. found here) Behavioral questions Are you comfortable with the level of crop revenue risk you encounter in your farm business? Yes_____ No _____ Do you analyze your business financial situation annually to determine the level of crop revenue risk protection needed by your business? Yes____ No ____ Do you utilize risk management tools to limit loss of working capital and/or net worth beyond a predetermined level? Yes ____ No _____ To make risk management decisions, I a . contact ask my lender, Operational questions Do you have a printer attached to your DTN unit. Yes _____ No______ If yes, do you print off the lessons. Yes____ No _____ On average, how much do you plan to devote studying each lesson? Time ____________ |
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