During World War II, Polyethylene Vinyl Was in High Demand

Multiple Choice

During World War II, polyethylene vinyl was in high demand while supply was in flux due to the constant air raids on manufacturing plants. Valli's Vinyl, a company that presses vinyl records, wanted to hedge its risk against the then unpredictable vinyl market. It decided to enter into a contract with its best vinyl supplier, Presley's Polyethylene Plastics to pay ?100 per metric ton of vinyl for 500 metric tons in six months. Shortly thereafter, a German air raid destroyed a large supply dump storing raw materials used in vinyl production. Consequently, the price per metric ton of vinyl shot up to ?250. At the end of the six months, Valli's Vinyl purchased the agreed-upon 500 metric tons at ?100 per ton. Presley's Polyethylene Plastics recorded a substantial loss as a result of the agreement. Which derivative instrument does this scenario best represent?

A) Forward
B) Future
C) Swap
D) Option
E) Not a derivative