Posted by: usset001 | May 15, 2009

Futures and Options Final Examination

quiet-exams-in-progress1Shhh! There really is a test going on – right here, right now. It is just after 8:00 am on Friday and I handed out 50 final examinations for the 4481 Agricuultural Futures and Options course. The only thing standing between these students and a great summer is 8 pages and two hours of an exam written by an ill-tempered professor. Let’s celebrate the end of the semester with one last test question, straight from today’s exam.

  1. In grain merchandising, basis…

A.  is more predictable than flat prices

B.  consists partly of transportation costs and local supply and demand

C.  is the link between cash and futures prices at some specific location

D.  all of the above

Basis is an important fundamental concept and I spent a great deal of time on the topic. Speaking of basis, I can’t be the only one who has noticed the radical change in the soybean basis since the first of the year. Since January, the nearby soybean basis has traded in a range of 35 – 50 cents under. These are the best levels seen since 2005, and a great improvement over the all-too-common 80-120 cents under experienced during much of 2007 and 2008. A strong basis points to a fundamentally strong market – I am not surprised to see a firm tone in futures prices.

By the way, the answer to the test question is “D,” or all of the above. But you knew that, right?

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