An Oklahoma natural gas user hedges the December 2013 purchase with a Henry Hub futures contract expiring at the end of November 2013. The locked-in futures price is $2.95. ANR usually trades below Henry. To hedge basis risk the user decides to enter into a basis swap agreement for a fixed price of -$.20.

a.Does the natural gas user buy or sell the basis swap?

b.At the end of November, Henry Hub contract settles at $3.50 and the spot price for ANR is $3.20. On the following diagram, please show all exchanges between the gas user buying from ANR and the spot market, the futures exchange, and the swap counterparty.