A firm which plans to buy oil might anticipate a period of market volatility and wish to protect its expense against price fluctuations. The firm should: A. enters a long position in oil futures or purchase a call option on oil. B. enters a long position in oil futures or purchases a put option on oil. C. enters a short position in oil futures or purchase a call option on oil. D. enters a short position in oil futures or purchases a put option on oil.
The answer is
A. enters a long position in oil futures or purchase a call option on oil.
Long position in futures means the buying position while short
position means the selling position.
Call Option is the right to buy the underlying asset at a specified
price on a future date
Put Option is the right to sell the underlying asset at a specified price on a future date
Since the firm plans to buy oil.
It should enter into long position in futures or purchase a call option i.e. the right to buy
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