FRM Part I · FRM Exam Part I · How Do Firms Manage Financial Risk?
On 1 March a farmer-cooperative short hedger sells wheat futures at 640 when spot is 625. On 1 June it closes the futures at 655 and sells the physical wheat at 648. What is the net realised price per unit from the hedged position (spot sale plus futures gain or loss)?
The net realised price is 633. The short futures position lost 15 (sold at 640, closed at 655), reducing the spot sale of 648 to 633. Equivalently, it is the initial futures price of 640 plus the final basis of -7.
- A633Correct
- B640
- C648
- D655
Explanation
Futures loss for a short = 640 - 655 = -15. Net price = 648 - 15 = 633. Check: initial futures 640 plus final basis (648 - 655 = -7) = 633. The answer 640 would hold only with zero basis change.
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