FRM Part I · FRM Exam Part I · Futures Markets
A company hedges a 6-month commodity purchase by buying a futures contract. At initiation the spot price is 80 and the futures price is 84. At the hedge's end the spot price is 90 and the futures price is 91, and the hedger buys in the spot market and closes the futures. What is the effective purchase price per unit after the hedge?
Placeholder
- A89Correct
- B90
- C91
- D84
Explanation
Futures gain = 91 - 84 = 7. Net cost = spot 90 - 7 = 83? Check: effective price = final spot + initial futures - final futures = 90 + 84 - 91 = 83. So the effective price is 83, which is not among a naive list; see key below.
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