Question

Suppose that in the 5 days following a farmer’s sale of September wheat futures at a futures price of $2.65 the futures prices are
Day	1	2	3	4	5
Price	$2.65	$2.56	$2.67	$2.74	$2.87
At the end of day 5 the farmer decides to quit wheat farming and buys back his futures contract. The contract size is 4,000 bushels. What payments are made between the farmer and the exchange on each day? What is the total payment over the five days? (Use minus sign to enter negative cash flows, if any. Do not leave any cell blank. Put zero wherever required.)

           

		Futures price		Cash flow per contract
Day 1		$2.65		$
Day 2		$2.56		$
Day 3		$2.67		$
Day 4		$2.74		$
Day 5		$2.87		$
Total:				$

  

Would the total payment be any different if the contract was not marked to market?
(Click to select)NoYes

Answer 1

Day	Futures price	Cash flow per contract	Working
Day 1	$2.65	$0	=(2.65-2.65)*4000
Day 2	$2.56	$360	=(2.65-2.56)*4000
Day 3	$2.67	($80)	=(2.65-2.67)*4000
Day 4	$2.74	($360)	=(2.65-2.74)*4000
Day 5	$2.87	($880)	=(2.65-2.87)*4000
Total:		($960)

Yes, the total payment would be different if the contract was not Marked to Market, as the contract would only settle on Day 5, resulting in cash outflow of $880/