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Laura Cervantes is a currency speculator and she sells eight June futures contracts for 500,000 pesos...

Laura Cervantes is a currency speculator and she sells eight June futures contracts for 500,000 pesos at the futures price of 0.10773 $/MXN.

a) What is the value of her position at maturity if the ending spot rate is $0.12002/MXN?

b) What is the value of her position at maturity if the ending spot rate is $0.09802/MXN?

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Answer #1

1 June Futures Contract = 500000 Pesos (MXN) and Number of Contracts Sold = 8

Initial Exchange Rate = 0.10773 $ / MXN

Initial Position Value = 8 x 500000 x 0.10773 = $ 430920

(a) Final Exchange Rate = $ 0.12002 / MXN

Final Position Value = 8 x 500000 x 0.12002 = $ 480080

Net Position Value = 430920 - 480080 = - $ 49160

(b) Final Exchange Rate = $ 0.09802 / MXN

Final Position Value = 8 x 500000 x 0.09802 = $ 392080

Net Position Value = 430920 - 392080 = $ 38840

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