CMA Final · Strategic Financial Management · Forwards and Futures
A firm buys 2 lots of a currency futures contract, each of USD 1,000 (lot value), at Rs 83.00 per USD. Initial margin is Rs 2,000 per lot. After day 1 the settlement price is Rs 83.20 and after day 2 it is Rs 82.90. What is the cumulative mark-to-market gain/(loss) after day 2 for the firm?
The firm has a cumulative loss of Rs 200. A long position in USD 2,000 gains Rs 400 on day 1 and loses Rs 600 on day 2, equivalent to the net price fall of Rs 0.10 on USD 2,000.
- ALoss of Rs 200Correct
- BGain of Rs 400
- CGain of Rs 200
- DLoss of Rs 400
Explanation
Total USD = 2 x 1,000 = 2,000. Day 1 gain = 0.20 x 2,000 = Rs 400. Day 2 loss = 0.30 x 2,000 = Rs 600. Cumulative = 400 - 600 = loss of Rs 200 (equal to (82.90-83.00) x 2,000). Gain of Rs 400 counts only day 1.
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