It is December 1. Quaker Oats knows oats will be ready for market in May. Based on the current futures prices for August oats they know that he can make a profit. Quaker Oats expects to require 20,000 bushels of oats. If they buy the oats today, they could enter cash contract that would cost them $3.50/bushel. Quaker Oats decides to hedge and their broker confirms their order to go long for May oat index futures at $3.40 per bushel. On May 1, the Quaker Oats offsets their futures position at $3.60 per bushel and purchases their oats locally at $3.55 per bushel Complete blanks and circle correct answer where required: 1 Date Cash Futures Basis IS 1-Ded Cash price is per bushel Buy/Sell (underline one) Contracts At per bushel IS 1-May Buy/Sell (underline one) wheat at Buy/Sell (underline one) Contracts per bushel At per bushel Result loss/gain (underline one) loss/gain (underline one) 2 Is this a short or a long hedge? 3 Did the basis strengthen or weaken (underline one)? 4 Actual Purchase price Futures gain/Loss =gross price paid 5 Total gain/(loss) from transaction (net gain/(loss) from cash and futures position combined) 6 If basis was 0.10 at May, what would have been the net gain/(loss) to Quaker Oats? It is December 1. Quaker Oats knows oats will be ready for market in May. Based on the current futures prices for August oats they know that he can make a profit. Quaker Oats expects to require 20,000 bushels of oats. If they buy the oats today, they could enter cash contract that would cost them $3.50/bushel. Quaker Oats decides to hedge and their broker confirms their order to go long for May oat index futures at $3.40 per bushel. On May 1, the Quaker Oats offsets their futures position at $3.60 per bushel and purchases their oats locally at $3.55 per bushel Complete blanks and circle correct answer where required: 1 Date Cash Futures Basis IS 1-Ded Cash price is per bushel Buy/Sell (underline one) Contracts At per bushel IS 1-May Buy/Sell (underline one) wheat at Buy/Sell (underline one) Contracts per bushel At per bushel Result loss/gain (underline one) loss/gain (underline one) 2 Is this a short or a long hedge? 3 Did the basis strengthen or weaken (underline one)? 4 Actual Purchase price Futures gain/Loss =gross price paid 5 Total gain/(loss) from transaction (net gain/(loss) from cash and futures position combined) 6 If basis was 0.10 at May, what would have been the net gain/(loss) to Quaker Oats