Multiple Choice
Suppose Chad believes that the price of oil will be higher in the future and buys an oil futures contract from Joe. The contract will give Chad the right to 1,000 barrels of oil at $50 per barrel to be delivered by Joe 30 months in the future. Which statement is correct?
A) Chad has to pay Joe $50,000 upon the purchase and waits for 30 months for delivery of 1,000 barrels of oil.
B) Chad will receive the cash difference from Joe if the per barrel oil price rises higher than $50 after 30 months.
C) Joe will receive the cash difference from Chad if the per barrel oil price rises higher than $50 after 30 months.
D) Joe will deliver the oil to Chad after 30 months and receive $50,000 from Chad.
Correct Answer:
Verified
Correct Answer:
Verified
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