FRM Part I · FRM Exam Part I · Futures Markets
A corn farmer expects to sell 50,000 bushels in three months and sells 10 futures contracts (5,000 bushels each) at 6.20 per bushel today. At the sale date, the spot price is 5.80 and the futures price is 5.95. What is the effective price per bushel the farmer realizes, ignoring margin financing?
The farmer realizes 6.05 per bushel. The futures position gains 0.25 (6.20 minus 5.95), which is added to the 5.80 spot sale price. Equivalently, the initial futures price plus the ending basis of -0.15 gives the same result.
- A5.80
- B5.95
- C6.05Correct
- D6.20
Explanation
Futures gain = 6.20 - 5.95 = 0.25 per bushel. Effective price = spot 5.80 + 0.25 = 6.05. Equivalently, initial futures price 6.20 plus the final basis (5.80 - 5.95 = -0.15) gives 6.05. Choosing 6.20 wrongly assumes the basis is zero at closing.
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