Question

Assume today’s settlement price on a CME AUD futures contract is $0.8410/AUD.
Contract size is AUD100,000
You decide to BUY one contract.
At the close of the next business day, if the new settlement price for that contract is $0.820, what is your dollar profit or loss? You need to find how much AUD per futures contract?

--- I answered -2,100, and it is not correct

At the close of the next business day, if the new settlement price for that contract is $0.8500, what is your dollar profit or loss?

--- I answered 900, and it is not correct

Answer 1

Q 1). Solution :- Intially, 1 $ = 0.8410 AUD

On closing, 1 $ = 0.820 AUD.

Accordingly, There is increase in US dollar ($) value when compared with Australian dollar (AUD). In other words, Australian dollar is falling when compared with US dollar.

Therefore, Profit (in dollar terms) = (0.8410 - 0.820) * 100000

= 0.021 * 100000

= $ 2100 (Profit)

Conclusion :- Profit (in $ terms) = 2100. (This is not a situation of loss because US dollar is stronger as the closing price of australian dollar is lower when comparing with US dollar).

Q 2). Solution :- Intially, 1 $ = 0.8410 AUD

On closing, 1 $ = 0.85 AUD.

Accordingly, There is decrease in US dollar ($) value when compared with Australian dollar (AUD). In other words, Australian dollar (AUD) is increasing when compared with US dollar ($).

Therefore, Loss (in dollar terms) = (0.85 - 0.8410) * 100000

= (-) 0.009 * 100000

= (-) 900 (Negative symbol represents to loss situation in the US dollar terms.)

Conclusion :- Loss (in $ terms) = (-) 900. [ This is not a situation of profit because US dollar is weaker as the closing price of australian dollar (AUD) is higher when comparing with US dollar ($). Accordingly, There is (-) 900 i.e., loss of $ 900 in the given second situation when closing price of 1 $ equals to 0.85 AUD. ]