The nearby hog futures contract closed at $49.80 with a local basis of $1.85 under. The local cash market price was what?

The nearby hog futures contract closed at $49.80 with a local basis of $1.85 under. The local cash market price was what?

• A. $47.95
• B. $50.65
• C. $49.80
• D. $46.50

Answer: (A)

Basis is the difference between the cash price and the futures price. When the basis is described as under by 1.85, it means the cash price is 1.85 dollars lower than the futures price. So the local cash price equals the futures price minus 1.85: 49.80 − 1.85 = 47.95. Therefore, the local cash market price is $47.95 per cwt.

Basis is the difference between the cash price and the futures price. When the basis is described as under by 1.85, it means the cash price is 1.85 dollars lower than the futures price. So the local cash price equals the futures price minus 1.85: 49.80 − 1.85 = 47.95. Therefore, the local cash market price is $47.95 per cwt.