If the futures price is 52.00 and the basis is 2.50 under, what is the local cash market price?

If the futures price is 52.00 and the basis is 2.50 under, what is the local cash market price?

• A. $49.50
• B. $54.50
• C. $52.00
• D. $50.00

Answer: (A)

The basis is the difference between the cash price and the futures price. When it’s described as under, the cash price is lower than the futures price by the given amount. So with a futures price of 52.00 and a basis of 2.50 under, the local cash market price is 52.00 minus 2.50, which equals 49.50. The other numbers would require different basis values, for example a cash price equal to the futures price (zero basis) or a cash price higher than the futures price (positive basis).

The basis is the difference between the cash price and the futures price. When it’s described as under, the cash price is lower than the futures price by the given amount. So with a futures price of 52.00 and a basis of 2.50 under, the local cash market price is 52.00 minus 2.50, which equals 49.50. The other numbers would require different basis values, for example a cash price equal to the futures price (zero basis) or a cash price higher than the futures price (positive basis).