Sketch out your total cash pro
Sketch out your total cash proceeds (spot cash +/- profit onfutures) in January assuming the following 3 scenarios:
a. Spot price PT at delivery = your initial F0
b. Spot price PT at delivery = your initial F0 – $0.30
c. Spot price PT at delivery = your initial F0 + $0.30
Answer:
Since the question doesn’t mention if position in futures inlong position or short position, we are assuming long position inFutures
Scenerio a. Spot price PT at delivery = your initial F0:
Gains on future = Spot at delivery – initial Future Price F0
Therefore Gains on future = initial Future Price F0 – initialFuture Price F0
Therefore Gains on future = nil
Total Cash Proceeds = Spot Price at Delivery + Gains onfuture
Total Cash Proceeds = PT + 0
Total Cash Proceeds = PT
Scenerio b. Spot price PT at delivery = your initial F0 –$0.30
Gains on future = Spot at delivery – initial Future Price F0
Therefore Gains on future = initial Future Price F0 – $0.30 -initial Future Price F0
Therefore Gains on future = -$0.30
Total Cash Proceeds = Spot Price at Delivery + Gains onfuture
Total Cash Proceeds = PT – $0.30
Scenerio c. Spot price PT at delivery = your initial F0 +$0.30
Gains on future = Spot at delivery – initial Future Price F0
Therefore Gains on future = initial Future Price F0 + $0.30 -initial Future Price F0
Therefore Gains on future = $0.30
Total Cash Proceeds = Spot Price at Delivery + Gains onfuture
Total Cash Proceeds = PT + $0.30
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