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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 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 value of profit/loss (P/L) on the futures is ______. $980+15 or $995 $1015 -1000 or $15 $1015-$981 or $34 $981+15 or $996 $981+$34 or $1015 $980+$34 or $1014

Solutions

Expert Solution

The producer of commodity wants to hedge his position and he will be taking a short position on the commodity futures.

On November 1st, the amount received from selling of the commodity FUTURES= $980

Gain/loss which has been realised by the futures market=-(F2-F1)= -(981-1015)=$ 34

the producer made a gain of $34 from the future market.

Correct answer will be option (C) $34

jeff jeffy answered 2 years ago
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