Let the spot price of gold today be $1,500 per ounce. A jewelry maker sets up a buying hedge by going long gold futures. The basis is $30 today and $110 on the last day of the hedge, when the futures position is closed and gold is purchased in the spot market. 

The jewelry maker's effective buying price for gold is:

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The effective buying price for gold in this scenario can be calculated by considering the init... View the full answer