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Future Contract Asset (Fair Value Hedge)

This topic has 1 reply, 2 voices, and was last updated 1 year ago by Stephen Widberg.

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February 25, 2021 at 2:23 pm #611674
wongyongshengwong
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Referring to BPP SBR Study Text Chapter 8 Illustration 11, on the topic of fair value hedging
1 July 20X6
Joules sold 10,000 ounces in the futures market for $215 per ounce for delivery on 30 June 20X7.
31 December 20X6
The futures price for 30 June 20X7 delivery was $198 per ounce.
30 June 20X7
The trader sold the inventories and closed out the futures position at the then spot price of $190 per ounce.
May I know that why it is increase in future contract asset (a gain) although the price of future keeps dropping?
February 28, 2021 at 8:17 am #612060
Stephen Widberg
Keymaster
- Topics: 11
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You have agreed to sell for 215.
The selling price (for everyone else drops to 190).
So you are happy – it’s a gain.
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