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:

Return on Assets

A financial ratio indicating how profitable a company is relative to its total assets, measuring the efficiency of asset use.

Leverages

The use of borrowed money (debt) in addition to equity in the investment to finance the purchase of assets and increase the potential return on investment.

Statement of Cash Flows

A financial report that shows how changes in balance sheet accounts and income affect cash and cash equivalents, dividing activity by operating, investing, and financing activities.

Quick Ratio

A liquidity ratio that measures a company's ability to meet its short-term obligations with its most liquid assets, excluding inventories.