Question

Excercise 2 The American speculator predicts that corn prices will rise from the current $3 per bushel in June to $4 per bushel over the next three months. September contracts for corn currently cost $3.25. The speculator buys 10 contracts for 5 000 bushels of corn each, the initial deposit is 15% and the commission is $40 for the contract. Please describe the investor's situation in the two cases below. a) The American speculator is unlucky: three months later the price of corn futures falls to the price of $2.75 per bushel. How much did the speculators loose? b) The American speculator is lucky: three months later, the price increases to $3.90 per bushel. How much did the speculator earn?

Answer 1

Current Price 3 Months forward cost 3.00 3.25 Contract cost Price 10 Contractes (Lot 5000) Comission ($40 Per contract) 3.25 1,62,500 400 $ Total Buying Cost 1,62,900 Loss to Speculator Expiry Price of 10 Contracts (10*5000 2.75S) 1,37,500 1,62,900 $ 25,400 Less Buying Cost Loss to speculator b) Profit to Spe culator Expiry Price of 10 Contracts (-10*5000*3.95) Less Buying Cost Profit to Spe culator $1,95,000 1,62,900 32,100 NotesInterest on Margin deposit was not calculated as cost bcs no interset rate is given in question so such interest cost was ignored