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Financial Risk Manager Part 1

Financial Risk Manager Part 1

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The May 2011 spot price (S1) of wheat is 7.00perbushelandtheDecember2011futuresprice(F1)is7.00 per bushel and the December 2011 futures price (F1) is 7.00perbushelandtheDecember2011futuresprice(F1)is9.00. Going forward three months to August, assume the spot price (S2) of wheat increases to 7.30andtheDecember2011futuresprice(F2)increasedto7.30 and the December 2011 futures price (F2) increased to 7.30andtheDecember2011futuresprice(F2)increasedto9.10. What happens to the basis between May and August?

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