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8
An investor sells a futures contract an asset when the futures price is $1,500. Each contract is on 100 units of the asset. The contract is closed out when the futures price is $1,540. Which of the following is true
A.The investor has made a gain of $4,000
B.The investor has made a loss of $4,000
C.The investor has made a gain of $2,000
D.The investor has made a loss of $2,000
A.The investor has made a gain of $4,000
B.The investor has made a loss of $4,000
C.The investor has made a gain of $2,000
D.The investor has made a loss of $2,000
Answer: B
An investor who buys (has a long position) has a gain when a futures price increases. An investor who sells (has a short position) has a loss when a futures price increases.
An investor who buys (has a long position) has a gain when a futures price increases. An investor who sells (has a short position) has a loss when a futures price increases.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015
Here's the breakdown:
Initial action: The investor sells the futures contract at $1,500 → this is a short position.
Contract size: 100 units
Closing action: The contract is closed when the price has increased to $1,540.
Since the investor is short, an increase in the futures price means a loss.
Calculation:
Loss per unit = $1,540 − $1,500 = $40
Total loss = 100 units × $40 = $4,000
Hence, the investor has made a loss of $4,000.
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