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Calculate your profit, measured in dollars, from the following trade
Calculate your profit, measured in dollars, from the following trade. You may assume that the entire profit is realized at maturity.
On 1/3, you enter 1 long futures contract on the dollar at a price of £0.784 with a multiplier of 10,000. The spot price of the dollar on 1/3 is £0.779.
The futures contract matures on 7/14 at which time the spot price of the dollar is £0.791.
Group of answer choices
$120
$88.50
-$120
-$70
Expert Solution
The correct answer is $ 120
Explanation
We are in long futures contract
Futures entry price = 0.779
When the futures matures the price prevailing was 0.791. The spot price will be the same as futures price on expiry beucase there is no time value left in the future.
So our exit price is 0.791.
So profit = Exit price - Exit price
= 0.791 - 0.779
= 0.012
Lot of trading is 10000
So total profit = Lot * Profit
total profit = 10000 * 0.012
total profit = 120
So $ 120 ( 1st option is the correct answer)
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