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A junior analyst at a bank is examining the trading activities of different derivatives market participants. The analyst focuses on understanding the motivations and goals of hedgers, speculators, and arbitrageurs. Which of the following is a correct example of a hedging activity?
A
A soybean farmer purchases a 6-month out-of-the-money call option on soybeans.
B
A trader, who believes that a commodity price is mean-reverting over time and is currently undervalued, enters a long position in the commodity.
C
A trader enters a transaction where the forward price of the asset is greater than the price at which it could be purchased today by borrowing the full purchase price.
D
A US-based manufacturing company that is scheduled to make a large payment in euros in 1 year purchases a 1-year forward contract for the same euro amount.