Sixty futures contracts are used to hedge an exposure to the price of silver. Each futures contract is on 5,000 ounces of silver. At the time the hedge is closed out, the basis is $0.20 per ounce.
What position should the trader take if he is hedging the purchase of silver?
What position should the trader take if he is hedging the sale of silver?
What is the effect of the basis on the hedger’s financial position in (a)?
What is the effect of the basis on the hedger’s financial position in (b)?