A speculator 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
C
In this case there is no hedge accounting. Gains or losses are accounted for as they are accrued. The price per unit increases by $3 in 2013 . The total gain in 2013 is therefore $3,000 .
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