Question

Future on corn are traded on the CME (Chicago Mercantile exchange). Each contract is for 5,000 bushels of corn each. You decide to enter 10 contracts to purchase 50,000 bushels of corn at a price of $300.48 per 5,000 bushels. On the maturity date of the contract, the spot price for 5,000 bushels of corn is $282.03. When the contract is settled you will have made a total profit (loss as a negative number) of ...

Answer 1

A futures contract is an agreement to buy the underlying in future at a price pre determined today.

A profit is made when futures price is lower than spot price at maturity, if a person is long futures contract.

Here, a long position in there in futures contract.

The contracted price is $ 300.48 for 5000 bushels. A long position in futures contract is an obligation to buy the underlying at future.

Spot price at maturity is $282.03.

Thus, a loss is being made here as spot price at maturity is lower than contracted future price. Loss is (282.03-300.48)*10 = ($184.5)

Thus, a loss of $184.5 is made.

Comment in case of any query.