Question

Laura Cervantes is a currency speculator and she sells eight June futures contracts for 500,000 pesos at the futures price of 0.10773 $/MXN.a) What is the value of her position at maturity if the ending spot rate is $0.12002/MXN?b) What is the value of her position at maturity if the ending spot rate is $0.09802/MXN?

Answer 1

Answer and Explanation:

The computation is shown below:

Given that

June Futures Contract = 500000 Pesos (MXN)

And Number of Contracts Sold = 8

And, Initial Exchange Rate = 0.10773 $ / MXN

Now

Initial Position Value is

= 8 × 500000 × 0.10773

= $430920

Now

(a) The value of her position is

Final Exchange Rate = $0.12002 / MXN

Final Position Value is

= 8 × 500000 × 0.12002

= $480080

So,  

Net Position Value is

= 430920 - 480080

= - $49160

And,

(b) The value of her position is

Final Exchange Rate = $0.09802 / MXN

Final Position Value is

= 8 × 500000 × 0.09802

= $392080

So,

Net Position Value is

= 430920 - 392080

= $38840