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In: Finance

On March 1, the price of a commodity is $1,000, and the December futures price is...

On March 1, the price of a commodity is $1,000, and the December futures price is $1,015. On November 1, the price of commodity is $980, and the December futures price is $981. A producer of the commodity entered into a December futures contracts on March 1 to hedge the sale of the commodity on November 1. The producer closed out its position on November 1. The hedging futures makes_____.

loss

gain

Solutions

Expert Solution

On March 1:

Contract price for December Futures=$1015 Spot Price= $1000

On November 1:

December Futures Price =$981

So Profit from futures =1015-981=$34

Spot Price on November 1=$980

Thus Effective Price received=$980+$34=$1,014

So the gain is = 1014-1000= $14

jeff jeffy answered 2 years ago
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