A Hedger Takes a Long Position in a Futures Contract

question 3

Multiple Choice

A hedger 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:

Cul-de-sac

A blind alley or dead-end street, but in anatomy, it refers to a sac- or pouch-like cavity or space that is closed at one end.

Puncture

The act of making a small hole in something, often for medical reasons such as to draw blood or administer medication.

Surgical

Related to or used for medical operations that involve cutting into the body to treat diseases or injuries.

Mucous Membrane

A layer of epithelial tissue that lines various cavities in the body and covers the surface of internal organs, producing mucus.