DeanCo is a purchaser of natural gas and due to take delivery of 5,000,000 liters in January. In order to hedge against the possibility of gas prices increasing over the period up to January, the company takes a long position in March futures contract.

At the time, the price of March futures contract is $14.50 per 1,000 liters, with each contract being for delivery of 1,000 liters. In January, the contract is closed out with both the spot price of gas and the March futures being $14.75 per 1,000 liters.

Required:

(i) Total gains on closing out

(ii) Outlays on the spot market

(iii) Net costs to DeanCo

Answer rating: 100% (QA)

i Total gains on closing outTo calculate the total gains on closing out we need to determine the cha... View the full answer