A hedger 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
D
Hedge accounting is used. The whole of the gain or loss on the futures is therefore recognized in 2013 . None is recognized in 2012 . In this case the gain is $4 per unit or $4,000 in total.
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