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Fellow Fools,
Below is my understanding of derivative contracts. Is this correct or how far away from reality am I?

Say a farmer decides to sell a derivative contract for 100 bushels of corn @ \$100/bushel. When the corn is ready to be sold, the price of corn has;

* gone up to \$110/bushel (\$10 more/bushel than the contract). The farmer has to sell the 100 bushels of corn at \$100/bushel for a cost of \$10,000. This represents a derivative loss of \$1,000 (current cost of \$110/bushel x 100 ears) that will end up as a loss on the quarterly income statement.

* gone down to \$90/bushel when the corn is ready to be sold, the farmer still sells the corn at the contract price of \$100/bushel and reports a derivative gain of \$1,000 on the income statement.

keep it fun & enjoy each one
butch
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You might want to post your question at this board. I studied derivatives for my MBA, but it's been a while.

http://boards.fool.com/options-you-make-the-call-113013.aspx...
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Thanks fort the tip! Hopefully someone there will be able to let me know if I'm even in the ballpark with my understanding.

keep it fun & enjoy each one
butch