On Monday morning, a trader takes a long position in Australian dollars (AUD) future currency contract that matures on Thursday afternoon. The agreed upon price is USD76691/AUD for a currency lot of AUD100,000. A trader needs AUD 175,000. At the close of trading on Monday, the futures price falls to USD0.76620 = 1 AUD. At Tuesday close, the price further falls down to USD0.76602 = 1 AUD. At Wednesday close, the price rises to USD0.76658 = 1 AUD. At Thursday close, the price further rises to USD0.76698 = 1 AUD and the contract matures. The trader takes delivery of the AUD at the prevailing price of USD0.76698 = 1 AUD. What will be the trader’s profit (loss)? Gain of USD 7 Gain of USD 70 Loss of USD 7
On Monday morning, a trader takes a long position in Australian dollars (AUD) future currency contract that matures on Thursday afternoon. The agreed upon price is USD76691/AUD for a currency lot of AUD100,000. A trader needs AUD 175,000. At the close of trading on Monday, the futures price falls to USD0.76620 = 1 AUD. At Tuesday close, the price further falls down to USD0.76602 = 1 AUD. At Wednesday close, the price rises to USD0.76658 = 1 AUD. At Thursday close, the price further rises to USD0.76698 = 1 AUD and the contract matures. The trader takes delivery of the AUD at the prevailing price of USD0.76698 = 1 AUD. What will be the trader’s profit (loss)? Gain of USD 7 Gain of USD 70 Loss of USD 7
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
- On Monday morning, a trader takes a long position in Australian dollars (AUD) future currency contract that matures on Thursday afternoon. The agreed upon price is USD76691/AUD for a currency lot of AUD100,000. A trader needs AUD 175,000. At the close of trading on Monday, the futures price falls to USD0.76620 = 1 AUD. At Tuesday close, the price further falls down to USD0.76602 = 1 AUD. At Wednesday close, the price rises to USD0.76658 = 1 AUD. At Thursday close, the price further rises to USD0.76698 = 1 AUD and the contract matures. The trader takes delivery of the AUD at the prevailing price of USD0.76698 = 1 AUD. What will be the trader’s
profit (loss )? - Gain of USD 7
- Gain of USD 70
- Loss of USD 7
- Loss of USD 70
Expert Solution
Step 1
Profit or loss on the currency futures is the difference between the price at which the futures are bought and price at which they settle.
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