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13 January, 01:11

One year ago, you entered into a futures contract to buy 100,000 euros at a futures contract price of $1.22, with a settlement date in one year. Assume that at the contract's maturity the spot rate of the euro is $1.25, Determine the total dollar amount of your profit or loss from speculating with the futures contract.

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  1. 13 January, 04:29
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    Profit of $3000

    Explanation:

    The exchange rate of a future contract is usually fixed at the time when the contract is buy 100,000 euros at a futures contract price of $1.22.

    The Value in dollars at the time is: $122,000

    At the maturity spot rate of the euro is $1.25.

    The value of the contract is: $125,000

    The difference:

    $125,000-122,000

    =$3000.

    Since the maturity spot rate is higher, there is a profit of $3000 from speculating with the futures contract.
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