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Effect of the basis on the hedger financial position

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Reference no: EM132657206

Assume an investor has used fifty futures contracts to hedge price exposure of gold. Each futures contract is on 5000 ounces of gold. At the time the hedge is closed out, the basis is $0.25 per ounce. What is the effect of the basis on the hedger's financial position?

(i) If the trader is hedging for the purchase of gold

(ii) If the trader is hedging for the sale of gold

Reference no: EM132657206

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