Marketing and Price Analysis Name: _______________________
ARE 225
Midterm Examination
Wednesday, March 15, 1995
Part I. Futures Markets
A. Assume a flour miller plans to buy 10,000 bushels of wh eat in April to meet his operating needs, but he's concerned that prices may ris e between now (November 1) and April. To protect himself, he establishes a hedg e using CBOT May wheat futures. (One CBOT wheat futures contract equals 5,000 b ushels.) At the time, cash wheat is selling for $3.45/bushel and CBOT May wheat futures are trading at $3.60/bushel.
On April 15, the miller purchases wheat locally at $3.65/ bushel and offsets his futures position at $3.95/bushel.
1. To protect himself in case wheat prices rise before he actually purchases the cash wheat, the flour miller would establish a hedge by:& #9;(5 points)
1. Buying 2 May wheat futures
2. Selling 2 May wheat futures
3. Buying 4 May wheat futures
4. Selling 4 May wheat futures
2. Is this a short or long hedge? (5 points)
3. Complete the following T-account: (20 points)
Cash Futures Basis
Nov. 1
April 15
Result:
Cash purchase price
Futures gain or loss
Net purchase price
B. Weather reports indicate abnormally high rainfall for t he next two weeks as the wheat harvest approaches. A speculator believes this c ould cause wheat prices to rise and decides to buy four July wheat contracts at $2.60/bushel. (One CBOT wheat futures contract equals 5,000 bushels.)
The weather predictions prove to be accurate, with heavy rains delaying harvest and riving prices up to $2.70. The speculator expects wh eat prices to move still higher. However, he decides to offset two contracts at $2.70 and hold on to the other two long positions in case prices rally further. The prices continue to rise slightly. Later the market drops to the $2.67 ran ge. The trader offsets his position and sells the remaining July wheat contract s at $2.67.
4. How much did he make on the first two wheat contracts h e offset? (10 points)
5. What was the gain on the remaining two contracts that w ere latter offset? (5 points)
C. Fill-in. Using the list of words below, complete the f ollowing sentences.
above holder reverse co nversion
at-the-money horizontal staying power
below in-the-money strike
call option intrinsic value ime value
conversion out-of-the-money vertica l
exercise premium volatility
expiration put option
6. The ______________________ or _________________________ _____ price is the price at which a put or a call option can be exercised by the option buyer. (5 points)
7. A (n)________________________ gives the buyer the right , but not the obligation, to assume a long futures position at a specific price anytime during the life of the option.
(5 points)
Part II. Marketing Environment
Multiple Choice (36 points, 3 per question)
8. Time, place, and ownership utility are created by
a. management
b. manufacturing
c. marketing
d. production
e. government
9. The essence of marketing is the exchange process in whi ch
a. two individuals each have something of value but ar e not willing to trade.
b. two individuals each have something of value and ar e willing to trade.
c. two individuals each have nothing of value but are willing to trade.
d. one individual has something of value and is willin g to trade.
e. neither individual has gained anything of value.
10. The group of consumers toward whom a firm directs its marketing efforts is referred to as a
a. wholesale market
b. consumer market
c. government market
d. target market
e. bull's eye
11. One category of nonprofit marketing is
a. functional marketing
b. descriptive marketing
c. nonfunctional marketing
d. price marketing
e. place marketing
12. The forces in marketing's external environment include each of the following except
a. political/legal
b. global
c. competitive
d. economic/technological
e. social/cultural
13. The broadest powers to influence marketing activities, at the federal level, are held by the
a. Federal Communications Commission
b. Interstate Commerce Commission
c. Federal Power Commission
d. Federal Trade Commission
e. Environmental Protection Agency
14. During periods of recession, marketers should consider
a. lowering prices
b. expanding product lines
c. increasing production
d. decreasing promotion outlays
e. making no decisions at this time
15. The infrastructure of a country refers to its
a. size, per capital income, and stage of economic dev elopment
b. culture, including language, education, and social values
c. communication systems, transportation networks, and energy facilities
d. legal agreements such as FCN treaties
e. trade barriers such as tariffs, import quotas, and embargoes against imported products
16. As the marketing manager for the Miracle Sports Equipm ent Company, the market you would most likely explore would be in international< /P>
a. China, because of its very large population
b. India, due to the growth of its middle class
c. Russia, as a result of glasnost
d. Kuwait, because it is a wealthy nation
e. Mexico, because its population is increasing rapidl y
17. Yuppies are most influenced specifically by
a. a reference group
b. a membership group
c. an aspirational group
d. a dissociative group
e. an indulgence group
18. Which of the following generalizations about the black , Hispanic, and Asian-American subcultures in the United States is correct?
a. They account for more than 25 percent of the total U.S. population.
b. The black population is more affluent than the whit e population.
c. Both blacks and Hispanics are very brand loyal.
d. Asian-Americans, on the average, are less well educ ated than the U.S. whites.
e. Blacks spend more on tobacco, entertainment, and pe rsonal care than do whites.
19. "Isn't it time you owned a Cadillac?" appeals to
a. physiological needs
b. esteem needs
c. self-actualization needs
d. safety needs
e. social needs
Short Answer (10 points)
20. Assume you want to establish a foothold in Albania, a country that just opened up to free markets four years ago and where people admi re and like American products. If you wanted to enter that country to market Am erican-type tennis shoes, which method of entering foreign markets would you use and why? Justify your answer.
Marketing Ethics (4 points)
21. Briefly summarize one of the following marketin g ethics issues presented in class.
a. Caller ID: Invasion of Privacy?
b. Selling with Fear
Have a nice Spring Break!