Question

Today is March 4. You believe that the Euro (EUR) will appreciate.

1. Your trading authority is US$ 15,000,000.
2. The spot $/€ is 1.3100
3. The September contract is trading at $/€ 1.3106
4. The EUR contract size is €100,000.

You decide to use the futures market at the Chicago Mercantile Exchange to speculate you entire trading authority.

1, You would most likely:

Buy futures contracts at $/€ 1.3100.Buy futures contracts at $/€ 1.3106.Sell futures contracts at $/€ 1.3100.Sell futures contracts at $/€ 1.3106.

With how many contracts?

2.

It is now two months later and you decide to liquidate your position, taking either a profit or a loss.

1. The spot $/€ is 1.3198
2. The futures contract is $/€ 1.3206.

You would,

Buy futures contracts at $/€ 1.3198.Buy futures contracts at $/€ 1.3206.Sell futures contracts at $/€ 1.3198.Sell futures contracts at $/€ 1.3206.

What is your profit or loss?

What is your total profit or loss?

Answer 1

1.Buy futures contracts at $/€ 1.3106. Because you expect the euro to appreciate. If euro appreciates, you would profit as you have entered the contract to buy the euro at $/€ 1.3106

With 15,000,000/100,000 = 150 contracts

2. Sell futures contracts at $/€ 1.3206. To close the open long position take a short position in the futures market.

3. Profit = 1.3206 - 1.3106 = $0.01 per €

Total profit = 0.01 * 100,000 * 150 = $150,000

Can you please upvote? Thank You :-)