A speculator takes a long position in a futures contract on a commodity on November 1,2012 to hedge an exposure on March 1,2013.The initial futures price is $60.On December 31,2012 the futures price is $61.On March 1,2013 it is $64.The contract is closed out on March 1,2013.What gain is recognized in the accounting year January 1 to December 31,2013? Each contract is on 1000 units of the commodity.
A) $0
B) $3,000
C) $1,000
D) $4,000

Question

Quizplus · Accepted Answer

In this case there is no hedge accounting.Gains or losses are accounted for as they are accrued.The price per unit increases by $3 in 2013.The total gain in 2013 is therefore $3,000.

A Speculator Takes a Long Position in a Futures Contract