On March 1 a commodity's spot price is $400 and its June futures price is $416. On May 1 the spot price is $440 and the June futures price is $448. A company entered into futures contracts on March 1 to hedge its purchase of the commodity on May 1. The effective price that the company pays for the commodity after taking the hedge into account is: O a. $400.00 O b. $416.00 O c. $408.00 O d. $432.00

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Blossom Inc. entered into a futures contract to sell grain for $1,120 in 30 days. This contract helps the company manage its market risk by locking in the amount it will get when it sells the grain. The contracts trade on an exchange and are net settleable. The broker requires a $220 initial margin (normally a percentage of the market value of the contract or a fixed amount multiplied by the number of contracts). This amount is deposited in cash with the broker. Like the forward, the futures contract would have a zero value up front. This is a non-financial derivative because the underlying is a non-financial commodity (grain). Blossom intends to settle on a net basis. Prepare the related journal entry at the acquisition date. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles Debit Credit

We define basis as futures price minus cash price. In general, what is the expected sign of the basis one month prior to expiry for oil sold on the spot market at the futures contract’s delivery location?  (i) positive  (ii) negative  (iii) zero