You are a jeweler who plans to sell excess (300 oz) gold in one month. Suppose that you have taken a short position in three contracts (size = 100 oz) of 6 month gold futures to hedge this risk. The price of one oz of gold when you take on the long position is $32, and the 6 month futures price of gold is $35. After one month, the price of one oz of gold is $30, the 6 month futures price is $38, and the 5 month futures price is $36. The point of this question is to underline basis risk. How much do you lose on your sale of excess gold due to price changes? Does your hedge via a short position help? What is the total net impact on your cash flows when you sell after one month? (Hint: there are two pieces - the impact of the change in the price, and the impact of the change in the futures price)