Asked by Ernesto Mejia on Jul 29, 2024
Verified
You sold one wheat future contract at $6.04 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $5.98 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.
A) $30 profit
B) $300 profit
C) $300 loss
D) $30 loss
Spot Price
The current market price at which a particular asset, like a commodity or currency, can be bought or sold for immediate delivery.
Wheat Future
A standardized contract traded on futures exchanges to buy or sell a specific amount of wheat at a predetermined price on a specified future date.
Profit
Profit refers to the financial gain that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.
- Understand the mechanics of profit and loss in futures trading.
Verified Answer
ZK
Zybrea KnightAug 03, 2024
Final Answer :
B
Explanation :
Selling a futures contract at a higher price than the spot price at maturity results in a profit. The difference per bushel is $6.04 - $5.98 = $0.06. For 5,000 bushels, the total profit is 0.06 * 5,000 = $300.
Learning Objectives
- Understand the mechanics of profit and loss in futures trading.