A Speculator Takes a Long Position in a Futures Contract

question 5

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)$1,000
• C)$3,000
• D)$4,000

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Definitions:

Shortens

The process or action of making something shorter in length or duration.

Striated Muscle

Muscle tissue that is marked by transverse dark and light bands, found in the skeletal muscles and cardiac muscle, enabling voluntary movements.

Prone Position

A body posture where one lies flat with the chest down and the back up.

Equal Measure

In the same or identical amount or degree; equivalently.