Asked by Steven Camarena on Jun 29, 2024
Verified
You purchased one wheat future contract at $5.04 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $4.98 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
Wheat Future Contract
A legal agreement to buy or sell wheat at a predetermined price at a specified time in the future, used for hedging or speculation.
Spot Price
The current market price at which an asset, like a commodity, currency, or security, can be bought or sold for immediate delivery.
Bushel
A unit of volume that is used in the United States for trading and pricing agricultural commodities like corn, wheat, and soybeans.
- Familiarize oneself with the concept and functionality of futures contracts employed in financial markets.
Verified Answer
JD
Jordan DavisJun 30, 2024
Final Answer :
C
Explanation :
The loss is calculated by taking the difference between the purchase price and the spot price at maturity, then multiplying by the contract size. Here, ($5.04 - $4.98) * 5,000 = $0.06 * 5,000 = $300 loss.
Learning Objectives
- Familiarize oneself with the concept and functionality of futures contracts employed in financial markets.