Questions: Problem - questions #6, # 7, #8, #9 refer to the following 17 Minutes, information. A corn grower sells a CME group Corn Futures Contract at 3.20 / bu. with an estimated local basis of 0.09 under futures. Later when the grower sells his/her corn at the local elevator he/she receives 3.81 / bu and lifts the hedge for 3.96/bu. 8. What was the actual basis when the hedge was lifted? (a) 0.15 / bu over (b) 0.17 / bu under (c) 0.15 / bu under (d) 0.17 / bu over

Solution Steps

To find the actual basis when the hedge was lifted, we need to calculate the difference between the local cash price and the futures price at the time the hedge was lifted. The basis is defined as the cash price minus the futures price.

We are given the local cash price and the futures price when the hedge was lifted. The local cash price is \(\$3.81/\text{bu}\) and the futures price is \(\$3.96/\text{bu}\).

The basis is calculated as the difference between the local cash price and the futures price. Mathematically, this is expressed as: \[ \text{Basis} = \text{Cash Price} - \text{Futures Price} \] Substituting the given values: \[ \text{Basis} = 3.81 - 3.96 = -0.15 \]

Since the calculated basis is negative, it indicates that the basis is "under". Therefore, the actual basis is \(-0.15/\text{bu}\) under.

Final Answer