WGU SCHOOL OF BUSINESS AND ECONOMICS| DEPARTMENT
OF FINANCE AND INVESTMENT
DERIVATIVES AND RISK MANAGEMENT EXAMINATION -2026
Academic Year: 2025/2026
The basis is defined as spot minus futures. A trader is hedging the sale of an asset with a short futures
position. The basis increases unexpectedly. Which of the following is true?
A. The hedger's position improves.
B. The hedger's position worsens.
C. The hedger's position sometimes worsens and sometimes improves.
D. The hedger's position stays the same.
Answer: A
The price received by the trader is the futures price plus the basis. It follows that the trader's position
improves when the basis increases.
1. Futures contracts trade with every month as a delivery month. A company is hedging the purchase of
the underlying asset on June 15. Which futures contract should it use?
A. The June contract
B. The July contract
C. The May contract
D. The August contract
Answer: B
As a general rule the futures maturity month should be as close as possible to but after the month when
the asset will be purchased. In this case the asset will be purchased in June and so the best contract is
the July contract.
1|Page
, 1. On March 1 a commodity's spot price is $60 and its August futures price is $59. On July 1 the spot
price is $64 and the August futures price is $63.50. A company entered into futures contracts on March
1 to hedge its purchase of the commodity on July 1. It closed out its position on July 1. What is the
effective price (after taking account of hedging) paid by the company?
A. $59.50
B. $60.50
C. $61.50
D. $63.50
Answer: A
The user of the commodity takes a long futures position. The gain on the futures is 63.50−59 or $4.50.
The effective paid realized is therefore 64−4.50 or $59.50. This can also be calculated as the March 1
futures price (=59) plus the basis on July 1 (=0.50).
1. On March 1 the price of a commodity is $1,000 and the December futures price is $1,015. On
November 1 the price is $980 and the December futures price is $981. A producer of the commodity
entered into a December futures contracts on March 1 to hedge the sale of the commodity on
November 1. It closed out its position on November 1. What is the effective price (after taking account
of hedging) received by the company for the commodity?
A. $1,016
B. $1,001
C. $981
D. $1,014
Answer: D
The producer of the commodity takes a short futures position. The gain on the futures is 1015−981 or
$34. The effective price realized is therefore 980+34 or $1014. This can also be calculated as the March 1
futures price (=1015) plus the November 1 basis (=−1).
1. Suppose that the standard deviation of monthly changes in the price of commodity A is $2. The
standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar
2|Page
OF FINANCE AND INVESTMENT
DERIVATIVES AND RISK MANAGEMENT EXAMINATION -2026
Academic Year: 2025/2026
The basis is defined as spot minus futures. A trader is hedging the sale of an asset with a short futures
position. The basis increases unexpectedly. Which of the following is true?
A. The hedger's position improves.
B. The hedger's position worsens.
C. The hedger's position sometimes worsens and sometimes improves.
D. The hedger's position stays the same.
Answer: A
The price received by the trader is the futures price plus the basis. It follows that the trader's position
improves when the basis increases.
1. Futures contracts trade with every month as a delivery month. A company is hedging the purchase of
the underlying asset on June 15. Which futures contract should it use?
A. The June contract
B. The July contract
C. The May contract
D. The August contract
Answer: B
As a general rule the futures maturity month should be as close as possible to but after the month when
the asset will be purchased. In this case the asset will be purchased in June and so the best contract is
the July contract.
1|Page
, 1. On March 1 a commodity's spot price is $60 and its August futures price is $59. On July 1 the spot
price is $64 and the August futures price is $63.50. A company entered into futures contracts on March
1 to hedge its purchase of the commodity on July 1. It closed out its position on July 1. What is the
effective price (after taking account of hedging) paid by the company?
A. $59.50
B. $60.50
C. $61.50
D. $63.50
Answer: A
The user of the commodity takes a long futures position. The gain on the futures is 63.50−59 or $4.50.
The effective paid realized is therefore 64−4.50 or $59.50. This can also be calculated as the March 1
futures price (=59) plus the basis on July 1 (=0.50).
1. On March 1 the price of a commodity is $1,000 and the December futures price is $1,015. On
November 1 the price is $980 and the December futures price is $981. A producer of the commodity
entered into a December futures contracts on March 1 to hedge the sale of the commodity on
November 1. It closed out its position on November 1. What is the effective price (after taking account
of hedging) received by the company for the commodity?
A. $1,016
B. $1,001
C. $981
D. $1,014
Answer: D
The producer of the commodity takes a short futures position. The gain on the futures is 1015−981 or
$34. The effective price realized is therefore 980+34 or $1014. This can also be calculated as the March 1
futures price (=1015) plus the November 1 basis (=−1).
1. Suppose that the standard deviation of monthly changes in the price of commodity A is $2. The
standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar
2|Page
