1. Helen Luong, a currency trader for Pegasus Partners, uses the following futures quotes on the British pound (£) to speculate on the value of the pound. British Pound Futures, US$/pound (CME) Contract = 62,500 pounds 1 contract is £62,500 Open Maturity Open High Low Settle Change Interest March 1.4432 1.4471 1.4422 1.4468 0.0036 25,605 June 1.4275 1.4296 1.4267 1.4280 0.0005 809 a. If Helen buys 5 June pound futures, and the spot rate at maturity is $1.4042/£, what is the value of her position? b. If Helen sells 12 March pound futures, and the spot rate at maturity is $1.4632/£, what is the value of her position? c. If Helen buys 3 March pound futures, and the spot rate at maturity is $1.4632/£, what is the value of her position?

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Dryomys Dryomys · Answer 1 · 2019-10-04T08:25:50+02:00

Answer: (a) $7,437.5

(b) $12,300.0

(c) $3,075.0

Explanation:

(a) June settle price from the table = 1.4280

Spot price at the contract expiration = 1.4042

So, the difference in $ for each contract = 1.4280 - 1.4042

= 0.0238

Helen has to buy for more than the spot price, so she is in loss

Helen is in loss of 0.0238 per contract

Total loss = 5 × 62500 × 0.0238

= $7,437.5

(b) March settle price from the table = 1.4468

Spot price at the contract expiration = 1.4632

So, the difference in $ for each contract = 1.4632 - 1.4468

= 0.0164

Helen has to sell for less than the spot price, so she is in loss.

Helen is in loss of 0.0164 per contract .

Therefore,

Total loss = 12 × 62500 × 0.0164

= $12,300.0

(c) March settle price from the table = 1.4468

Spot price at the contract expiration = 1.4632

So, the difference in $ for each contract = 1.4632 - 1.4468

= 0.0164

Helen has to buy for less than the spot price, so she is in gain .

Helen is in gain of 0.0238 per contract .

Total loss = 3 × 62500 × 0.0164

= $3,075.0