FRM Part I · FRM Exam Part I · Futures Markets
A refiner will buy crude oil in two months and hedges by going long futures at 72.00. When the hedge is lifted, the spot price is 75.50 and the futures price is 74.00. What is the refiner's effective purchase price per barrel?
The effective purchase price is 73.50 per barrel. The long futures position gains 2.00 (74.00 minus 72.00), reducing the 75.50 spot cost. Equivalently, the initial futures price of 72.00 plus the final basis of 1.50 equals 73.50.
- A73.50Correct
- B72.00
- C74.00
- D75.50
Explanation
Futures gain = 74.00 - 72.00 = 2.00 per barrel. Effective cost = 75.50 - 2.00 = 73.50. Check: initial futures 72.00 plus final basis (75.50 - 74.00 = 1.50) = 73.50. Option 72.00 ignores basis.
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