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Futures Contracts.

On Monday morning, you take a long position in a pound futures contract that matures on Wednesday afternoon. The agreed-upon price is $1.78 for £62,500. At the close of trading on Monday, the price has risen to $1.80. At Tuesday close, the price rises further to $1.80. At Wednesday close, the price falls to $1.785, and the contract matures. The investor takes delivery of the pounds at the prevailing price of $1.785. Detail the settlement process. What will be the investor's profit (loss)?

Suppose that DEC buys a Swiss franc futures contract (contract size is SFr 125,000) at a price of $.83. If the spot rate for the Swiss franc at the date of settlement is SFr 1 =$.8250, what is DEC's gain or loss on this contract?

Citigroup sells a call option on euros (contract size is ?500,000) at a premium of $.04 per euro. If the exercise price is $.91 and the spot price of the euro at the date of expiration is $.93, what is Citigroup's profit (loss) on the call option?

Solution Preview

On Monday morning, you take a long position in a pound futures contract that matures on Wednesday afternoon. The agreed-upon price is $1.78 for £62,500. At the close of trading on Monday, the price has risen to $1.80. At Tuesday close, the price rises further to $1.80. At Wednesday close, the price falls to $1.785, and the contract matures. The investor takes delivery of the pounds at the prevailing price of $1.785. Detail the settlement process. What will be the investor's profit (loss)?

Time Action Cash Flow
Monday ...

Solution Summary

The solution discusses future contracts.

$2.19