The basis for a 5000 bushel wheat future is $.50, and the current spot price increases by $.15. A person who owns the asset and is short in the futures market will
A) neither gain nor lose.
B) gain $750.
C) gain $3250.
D) lose $3250.

Question

Quizplus · Accepted Answer

The basis is the difference between the spot price and the futures price. If the spot price increases by $.15, the value of the physical asset (wheat) owned increases by 5000 bushels * $.15 = $750. Since the person is short in the futures market, they have locked in a selling price for the wheat, so the increase in the spot price results in a gain of $750 for the asset owner.

The Basis for a 5000 Bushel Wheat Future Is