The August 2023 S&P 500 cash index is 1050 while the December S&P 500 futures index is 1000 and the contract value of each index point is $100. You are convinced the futures market will fall 20% by expiry. You are only prepared to buy or sell one futures contract. (i) Will you buy or sell a contract in the futures market? (ii) What is your profit (+) in dollars if you are correct? (iii) What is your profit (+)/loss (-) if the futures price on expiry is 1200?

The August 2023 S&P 500 cash index is 1050 while the December S&P 500 futures index is 1000 and the contract value of each index point is $100. You are convinced the futures market will fall 20% by expiry. You are only prepared to buy or sell one futures contract. (i) Will you buy or sell a contract in the futures market? (ii) What is your profit (+) in dollars if you are correct? (iii) What is your profit (+)/loss (-) if the futures price on expiry is 1200?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 6BIC

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