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Answer: c) Basis strengthens by +$0.20
Basis is defined as: \[ \text{Basis} = S - F \] - **May basis** = 7.00 - 9.00 = **-2.00** - **August basis** = 7.30 - 9.10 = **-1.80** The basis moved from **-2.00 to -1.80**, which is an increase of **$0.20**. Since the basis became less negative, it **strengthened** by **$0.20**. **Correct answer: C**
Author: Manit Arora
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Q-152.1 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
a) Basis strengthens by +$0.10
B
b) Basis weakens by +$0.10
C
c) Basis strengthens by +$0.20
D
d) Basis weakens by -$0.20
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