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Question 14.12: A manufacturer of furniture is concerned that the price of l...

A manufacturer of furniture is concerned that the price of lumber will increase over the next three months. Explain how the manufacturer can protect against a rise in the price of lumber using lumber futures contracts.

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The manufacturer could enter into a futures contract now to lock in the price of the lumber three months from now. The manufacturer would be the buyer, with a commitment to take delivery of the lumber at a future point at time at a specified price.

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