Asked by Mannat Rattan on Jul 15, 2024
Verified
You sold one silver future contract at $2 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $3.50 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.
A) $5,500 profit
B) $7,500 profit
C) $7,500 loss
D) $5,500 loss
E) None of the options are correct.
Silver Spot Price
The current market price at which silver can be bought or sold for immediate delivery.
Silver Future
A standardized, exchange-traded contract to buy or sell a specific amount of silver at a future date and price.
Loss
The reduction in value experienced by an investment or business operation when expenses exceed revenues.
- Learn about the workings of profit and loss in futures trade.
Verified Answer
SC
Simone CastroJul 16, 2024
Final Answer :
C
Explanation :
Selling a futures contract means you agree to sell an asset at a set price at a future date. If the spot price at maturity is higher than the contract price, you incur a loss because you must sell the asset at a lower price than the market price. The loss per ounce is $1.50 ($3.50 - $2.00). For 5,000 ounces, the total loss is $7,500 (5,000 ounces * $1.50).
Learning Objectives
- Learn about the workings of profit and loss in futures trade.