Hull:Options,FuturesandOtherDerivatives,NinthEditionChapter3:HedgingStrategiesUsingFuturesMultipleChoiceTestBank:QuestionswithAnswers1.Thebasisisdefinedasspotminusfutures.Atraderishedgingthesaleofanassetwithashortfuturesposition.Thebasisincreasesunexpectedly.Whichofthefollowingistrue?A.Thehedger’spositionimproves.B.Thehedger’spositionworsens.C.Thehedger’spositionsometimesworsensandsometimesimproves.D.Thehedger’spositionstaysthesame.Answer:AThepricereceivedbythetraderisthefuturespriceplusthebasis.Itfollowsthatthetrader’spositionimproveswhenthebasisincreases.2.Futurescontractstradewitheverymonthasadeliverymonth.AcompanyishedgingthepurchaseoftheunderlyingassetonJune15.Whichfuturescontractshouldituse?A.TheJunecontractB.TheJulycontractC.TheMaycontractD.TheAugustcontractAnswer:BAsageneralrulethefuturesmaturitymonthshouldbeascloseaspossibletobutafterthemonthwhentheassetwillbepurchased.InthiscasetheassetwillbepurchasedinJuneandsothebestcontractistheJulycontract.3.OnMarch1acommodity’sspotpriceis$60anditsAugustfuturespriceis$59.OnJuly1thespotpriceis$64andtheAugustfuturespriceis$63.50.AcompanyenteredintofuturescontractsonMarch1tohedgeitspurchaseofthecommodityonJuly1.ItclosedoutitspositiononJuly1.Whatistheeffectiveprice(aftertakingaccountofhedging)paidbythecompany?A.$59.50B.$60.50C.$61.50D.$63.50Answer:ATheuserofthecommoditytakesalongfuturesposition.Thegainonthefuturesis63.50−59or$4.50.Theeffectivepaidrealizedistherefore64−4.50or$59.50.ThiscanalsobecalculatedastheMarch1futuresprice(=59)plusthebasisonJuly1(=0.50).4.OnMarch1thepriceofacommodityis$1,000andtheDecemberfuturespriceis$1,015.OnNovember1thepriceis$980andtheDecemberfuturespriceis$981.AproducerofthecommodityenteredintoaDecemberfuturescontractsonMarch1tohedgethesaleofthecommodityonNovember1.ItclosedoutitspositiononNovember1.Whatistheeffectiveprice(aftertakingaccountofhedging)receivedbythecompanyforthecommodity?A.$1,016B.$1,001C.$981D.$1,014Answer:DTheproducerofthecommoditytakesashortfuturesposition.Thegainonthef...
