Question

Maturity   Open   High Low Settle Change High   Open Interest
March   1.4246   1.4268   1.4214   1.4228   0.0032   1.4700   25,605
June   1.4164   1.4188   1.4146   1.4162   0.0030   1.4550   809

Tony Begay at Saguaro Funds. Tony Begay, a currency trader for Chicago-based Saguaro Funds, uses the following futures quotes,, on the British pound

(pound£ )to speculate on the value of the pound.

a. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.39841.3984 /£,

what is the value of her position?

b. If Tony sells 12 March pound futures, and the spot rate at maturity is

$1.45561.4556 /£,

what is the value of her position?c. If Tony buys 3 March pound futures, and the spot rate at maturity is

$1.45561.4556 /£,

what is the value of her position?d. If Tony sells 12 June pound futures, and the spot rate at maturity is

$1.39841.3984 /£,

what is the value of her position?

Answer 1

It is assumed that each position is entered into at the settle price of the day. Pound-dollar futures are traded on CME with a contract size of 62,500 pounds, hence we shall assume that this is the size of each futures contract

a]

Tony buys 5 June Pound futures at $1.4162, and the spot rate at maturity is $1.3984. This is a loss as the exchange rate has declined and Tony is long the pound futures. Value of position = ($1.3984 - $1.4162) * 5 * 62,500 = -$5,562.50

b]

Tony sells 12 March Pound futures at $1.4228, and the spot rate at maturity is $1.4556. This is a loss as the exchange rate has increased and Tony is short the pound futures. Value of position = ($1.4228 - $1.4556) * 12 * 62,500 = -$24,600

c]

Tony buys 3 March Pound futures at $1.4228, and the spot rate at maturity is $1.4556. This is a profit as the exchange rate has increased and Tony is long the pound futures. Value of position = ($1.4556 - $1.4228) * 3 * 62,500 = -$6,150

d]

Tony sells 12 June Pound futures at $1.4162, and the spot rate at maturity is $1.3984. This is a profit as the exchange rate has decreased and Tony is short the pound futures. Value of position = ($1.4162 - $1.3984) * 12 * 62,500 = $13,350