FRM Part I · FRM Exam Part I · Futures Markets
A corn futures contract covers 5,000 bushels. A trader goes long 8 contracts at $6.50 per bushel. Day 1 settle is $6.58, day 2 settle is $6.43, and on day 3 the trader closes at $6.47. Ignoring interest and margin deposits, what is the trader's total profit or loss over the three days?
The trader loses $1,200. The position totals 40,000 bushels, and the price fell from $6.50 to $6.47, a $0.03 decline. Daily marking to market gives +$3,200, -$6,000 and +$1,600, which also sums to a $1,200 loss.
- ALoss of $1,200Correct
- BGain of $1,200
- CLoss of $4,800
- DGain of $3,200
Explanation
The total gain is the final price minus the entry price times the quantity: (6.47 - 6.50) x 5,000 x 8 = -0.03 x 40,000 = -$1,200. Daily flows: +3,200, then -6,000, then +1,600, which sum to -$1,200. The $4,800 option uses only the day 2 move to day 3 incorrectly.
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