Examples of Individuals in Need of Price Exposure Management

B

The correct answer is A. Hedgers.

Explanation: Hedgers are individuals or businesses that use the futures market to protect themselves against potential losses resulting from changes in the prices of the underlying assets. In the given examples, both the gold producer and the cattle farmer are exposed to fluctuations in the prices of their commodities, which could result in potential losses. Therefore, they need to manage their exposure to price changes by hedging their positions in the futures market.

The gold producer wants to protect against losses resulting from a fall in the price of gold for his current gold inventory. To hedge against this risk, the producer can sell gold futures contracts, which allow him to lock in a price for a specified amount of gold at a future date. By selling the futures contracts, the producer can protect himself against any further decline in the price of gold and ensure a certain level of income from the sale of his gold inventory.

Similarly, the cattle farmer wants to hedge his exposure to changes in the price of his livestock. To achieve this, he can sell cattle futures contracts, which allow him to lock in a price for a specified amount of cattle at a future date. This protects the farmer against any potential decline in the price of his livestock and ensures a certain level of income from the sale of his cattle.

In contrast, speculators are individuals or businesses that enter the futures market solely to make a profit from changes in the price of the underlying asset. They do not have any direct exposure to the underlying asset, but rather seek to profit from fluctuations in its price. Therefore, the correct answer is A. Hedgers.