Explanation:
Basis Calculation:
May Basis:
$7.00, F1 = $9.00$7.00 - $9.00 = -$2.00August Basis:
$7.30, F2 = $9.10$7.30 - $9.10 = -$1.80Change in Basis:
$1.80) - (-$2.00) = +$0.20Interpretation:
$2.00 to -$1.80, which is an increase of +$0.20Therefore, the basis strengthens by +$0.20, making option C correct.
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The May 2011 spot price (S1) of wheat is $7.00 per bushel and the December 2011 futures price (F1) is $9.00. Going forward three months to August, assume the spot price (S2) of wheat increases to $7.30 and the December 2011 futures price (F2) increased to $9.10. What happens to the basis between May and August?
A
Basis strengthens by +$0.10
B
Basis weakens by +$0.10
C
Basis strengthens by +$0.20
D
Basis weakens by -$0.20