Which contract type helps lock in prices for commodities that experience sudden price spikes?

Which contract type helps lock in prices for commodities that experience sudden price spikes?

• A. Term contracts
• B. Open-end contracts
• C. Spot purchases
• D. Blanket orders

Answer: (A)

The main idea is using a contract to manage price risk for volatile commodities by locking in a price for a defined period. A term contract sets a fixed price (or a stable price formula) for a defined window and quantity, so you’re protected from sudden spikes during that period and can budget more reliably. This is especially helpful when you know you’ll need the commodity consistently over time. In contrast, spot purchases are made at the current market price at the time of the order, which exposes you to price surges. Open-end contracts don’t lock in a price because they cover flexible quantities and terms, and blanket orders are for recurring needs with a set delivery schedule and pricing terms, but they aren’t as clearly designed to lock prices over a long horizon the way a term contract does.

The main idea is using a contract to manage price risk for volatile commodities by locking in a price for a defined period. A term contract sets a fixed price (or a stable price formula) for a defined window and quantity, so you’re protected from sudden spikes during that period and can budget more reliably. This is especially helpful when you know you’ll need the commodity consistently over time. In contrast, spot purchases are made at the current market price at the time of the order, which exposes you to price surges. Open-end contracts don’t lock in a price because they cover flexible quantities and terms, and blanket orders are for recurring needs with a set delivery schedule and pricing terms, but they aren’t as clearly designed to lock prices over a long horizon the way a term contract does.