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FRM Part I · FRM Exam Part I · Commodity Forwards and Futures

A corn producer shorts futures at 6.20 per bushel to hedge a harvest sale in two months. When the hedge is lifted, the spot price is 5.90 and the futures price is 6.05. What is the effective price received per bushel, ignoring margin financing?

The producer receives 6.05 per bushel. The spot sale brings 5.90, and the short futures gain 0.15 because they fell from 6.20 to 6.05. Equivalently, the initial futures price of 6.20 plus the final basis of -0.15 equals 6.05.

  1. A6.05Correct
  2. B6.20
  3. C5.75
  4. D5.90

Explanation

Effective price = spot sale price + futures gain = 5.90 + (6.20 - 6.05) = 5.90 + 0.15 = 6.05. Equivalently, initial futures price 6.20 plus the final basis (spot - futures = -0.15) gives 6.05. The 6.20 option wrongly assumes a perfect hedge with zero basis.

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