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Answer: Short 1,000 futures contracts
A producer of the commodity is exposed to a fall in the spot price, so the appropriate hedge is a **short futures hedge**. If the futures contract is for 1,000 barrels, then: \[ \frac{1{,}000{,}000}{1{,}000} = 1{,}000 \] So the best hedge is to **short 1,000 futures contracts**.
Author: Manit Arora
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Question 151.1 An oil producer has negotiated a contract to sell one million barrels of crude oil in six months. Which is the best hedge against changes in the spot price of oil?
A
Short 1,000 futures contracts
B
Short 1,000,000 futures contracts
C
Long 1,000 futures contracts
D
Long 1,000,000 futures contracts
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