Assume oat spot prices over the next 3 years are $2.20,$2.35,and $2.28,respectively.The original swap price was $2.30 per bushel.If cash settlement occurs,what transaction will the counter-party make in year 2 on a 5,000-bushel swap agreement?
A) $250 payment
B) $250 receipt
C) $100 payment
D) $100 receipt

Question

Quizplus · Accepted Answer

In year 2, the spot price is $2.35, which is higher than the swap price of $2.30. The counter-party will pay the difference of $0.05 per bushel for 5,000 bushels, resulting in a $250 payment.

Assume Oat Spot Prices Over the Next 3 Years Are