A Speculator Takes a Long Position in a Futures Contract

question 7

Multiple Choice

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

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Definitions:

Share-Based Compensation

A form of remuneration where employees or executives receive awards in the form of shares or rights to shares as part of their compensation.

Unrealized Losses

Losses on investment or asset values that have decreased in market value but haven’t actually been sold by the company.

Dividends Declared

The amount of earnings a company has decided to pay out to its shareholders as dividends.

Diluted Earnings

A company's earnings calculated with the assumption that all convertible securities have been converted into common stock.