Question

Delta Construction Corporation plans to buy several tons of steel next year to build a skyscraper. The firm is concerned about price volatility in the steel market. Which of the following is a valid strategy for hedging this exposure?

Option 1: Purchasing steel futures contracts
Option 2: Investing in real estate
Option 3: Buying shares in a technology company
Option 4: Starting a marketing campaign

Answer 1

Purchasing steel futures contracts is a valid strategy for Delta Construction Corporation to hedge its exposure to price volatility in the steel market. Hence, option (1) is correct.

Step-by-step explanation:

The valid strategy for Delta Construction Corporation to hedge its exposure to price volatility in the steel market would be purchasing steel futures contracts.

Purchasing steel futures contracts would allow the company to lock in a specific price for the steel they plan to buy next year. This would protect them from any potential price increases in the market. If the price of steel increases, the company would still be able to purchase it at the agreed-upon price.

Investing in real estate, buying shares in a technology company, or starting a marketing campaign are not valid strategies for hedging the exposure to price volatility in the steel market as they do not directly address the price fluctuations in the steel market.