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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamental Analysis of Commodities

A refiner expects to buy crude oil in 2 months and fears a price rise. Spot crude is Rs 6,000 per barrel. The refiner buys futures at Rs 6,100 per barrel. At purchase time spot is Rs 6,500 and the futures price is Rs 6,580, and the futures position is closed out. The effective purchase price per barrel is:

The effective price is Rs 6,020 per barrel. The refiner gains Rs 480 on futures, bought at 6,100 and closed at 6,580, and this gain offsets part of the Rs 6,500 paid in the spot market. Net cost is 6,500 minus 480.

  1. ARs 6,500
  2. BRs 6,020Correct
  3. CRs 6,100
  4. DRs 6,580

Explanation

Futures gain = 6,580 - 6,100 = Rs 480. Effective cost = spot paid 6,500 - gain 480 = Rs 6,020. Rs 6,500 ignores the hedge, Rs 6,100 is just the initial futures price, and Rs 6,580 is the closing futures price.

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