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)$1,000
C)$3,000
D)$4,000

Question

Quizplus · Accepted Answer

The gain recognized in the accounting year January 1 to December 31, 2013 is the difference between the price at which the contract was entered into and the price at which it was closed out:

Gain = (Closing price - Initial price) x Number of units
Gain = ($64 - $60) x 1000
Gain = $4,000

Therefore, the correct answer is (C) $3,000.

A Speculator Takes a Long Position in a Futures Contract